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 07/06/2007

Press Conference
Treasury Place, Melbourne

Thursday, 7 June 2007
12 noon

SUBJECTS: May Labour Force figures, economic management, petrol, broadband

TREASURER:

In May unemployment fell further to 4.2 per cent, the lowest unemployment rate in Australia for 32 years.  And we saw in the month of May, full-time jobs increasing at the rate of about 2,000 a day.  Through the month of May an additional 2,000 full-time jobs a day were being created in Australia. 

Since the Government was elected there have now been 2.1 million new jobs created in Australia out of about 10½ million Australians who now have work.  And that is a great thing.  That is what economic policy is about, to create jobs so that people can get a foothold, earn an income, buy a house, look after a family.  This is the human dividend for economic management – the opportunity for every Australian who wants to do so to be able to find work. 

We have now been below 5 per cent unemployment rate for 13 months.  And whilst an unemployment rate will go up and down in a saw tooth manner, the fact that for over a year we have now had unemployment below 5 per cent shows you that we are now entrenching Australia as a low unemployment, high employment country compared to other countries around the world.  Now the important thing is to keep the economy growing, and importantly, to make sure that we can handle all of this jobs growth in a non-inflationary way.  This is where industrial relations reform comes in.  Industrial relations reform, has delivered a lot of these jobs and industrial relations reform, which allows job creation without setting off inflation, is absolutely critical to keeping this economic expansion going. 

At previous times in Australian history when we have been approaching strong employment growth, it has set off inflation.  And the economy has had to be closed down.  That is why we haven’t in the past 30 years got unemployment to these low levels.  And we won’t keep it at these low levels unless we have an industrial relations system which sets wages at the individual level, enterprise by enterprise.  A return to collected union agreements in a climate like this will set off inflation.  It will end Australia’s economic expansion and will put people out of work. 

So these are very welcome results.  In order to lock in the gains, we have to lock in the reforms and we want a situation where all Australians who want a job are able to find work.

JOURNALIST:

How close is Australia to full employment?

TREASURER:

Well you see, this is an interesting question, isn’t it?  What is full employment?  In the early 90s, the OECD thought full employment would be 7 per cent.  We thought full employment might be 5 per cent.  We are now at 4.2 per cent.  What is full employment?  I think in some parts of Australia we are in full employment – that is, you cannot find people to take jobs.  There are still parts of Australia where there are people who cannot find work.  But we are pretty close to full employment and in some areas of Australia we are in full employment.

JOURNALIST:

It didn’t seem that long ago that we were speculating about whether or not we could have a five in front of the unemployment number, now it is in the low fours.  Do you think we could have a three in front of it at some point?

TREASURER:

You see, that is the thing.  People were saying in the mid-1990s that we would be at full employment if we were at six or seven and now we are at 4.2 per cent.  How low can unemployment go?  Well the critical question is – how low can unemployment go without setting off inflation?  That is the critical question.  Because if it sets of off inflation, you would have to take steps to stop that and that would stop jobs growth.  So how low can unemployment go without setting off inflation?  Well, it can go much lower if you have got a good industrial relations system, that is my point – than it could have under centralised wage fixation. 

JOURNALIST:

Are you concerned about the pressure on interest rates?

TREASURER:

Well I think we can handle this jobs growth and this economic expansion if we have a good industrial relations system.  And if you went from this industrial relations system back to a system of collective agreements with the unions taking wage settlements, shop by shop, factory by factory through the whole economy, that would set off inflation.  There is no doubt of that.  We wouldn’t have even got to where we are now if we hadn’t have reformed the industrial relations system. 

JOURNALIST:

That is certainly obviously won’t happen presumably before the end of the year, before the election so therefore people are already talking about pressure on interest rates now.

TREASURER:

Well, people didn’t think we could get unemployment below 6 per cent without setting off inflation, then they thought we couldn’t get it below five and now we have got it to 4.2.  That is because we have improved our industrial relations system and I think that with a good industrial relations system we can manage low unemployment.  This is the object.  This is what we have been working to for 30 years.  And I think we can manage strong growth without setting off inflation.  But this is finely balanced and it has to be carefully calibrated.  And it is a very delicate business, economic management, at a time like this.  You have got to be very, very careful in a situation where unemployment is as low as 4.2 per cent.  

JOURNALIST:

Can it go on indefinitely with (inaudible) as they are?

TREASURER:

Well, at some point you just run out of employees.  There will always be some unemployment rate because with people who are in between jobs and moving from one job to the next, there will always be some unemployment rate.  What it actually is, is an open question.  The other thing I should say here is it is not only that unemployment has fallen low but the participation rate is now at an all-time record of 65 per cent.  So you have got more and more people who are coming in and looking for work, and fewer and fewer of those that are looking for work being unable to find it.  So we have got an all time record participation with a 32-year low on unemployment. 

JOURNALIST:

Sorry, what I actually meant was can it go on not affecting inflation?  Isn’t it ultimately going to affect inflation regardless of what performance you had?

TREASURER:

Well, this is the open question, isn’t it?  How low can you get unemployment without affecting inflation?  We have shown that you can get it below 5 per cent without affecting inflation on a good industrial relations system.  Let’s see whether we can do better.

JOURNALIST:

Treasurer, has the mining boom made the economy effectively bullet proof so that voters now feel they can trust the Opposition to run the economy?

TREASURER:

The Australian economy is not bullet proof.  The Australian economy has very big risks and the biggest risk at the moment is on such low unemployment, one missed cue, one misfire on industrial relations will set off inflation and bring this all to an end.  This is like a highly engineered racing car.  One missed cue, you take one corner a foot too wide and it will crash.  And I would say that it is highly calibrated and highly delicate at the moment. 

JOURNALIST:

That sounds like a proposition that should make us all feel very nervous.

TREASURER:

No, it is a proposition that says you need a good experienced driver in control of this highly calibrated economy.  And I will tell you what I wouldn’t be doing, I wouldn’t be putting an ‘L’ plate driver in the cockpit at the moment. 

JOURNALIST:

Speaking of cars and driving, let’s talk about petrol prices.  Graeme Samuel today hinted that he wants more regulation.  He wants you to step up to the mark now, many people are already saying in terms of petrol prices the ACCC is a toothless tiger.

TREASURER:

The ACCC has extensive powers.  It can demand people give evidence, it can demand documents, upon a search warrant it can go into anybody’s premises and seize books.  And I have said to Graeme Samuel that if needs any more powers, he should tell us, because he will be given them.  And from my discussion with him over a long period of time we did increase the ACCC’s powers.  That is when we gave it the right to enter premises and seize documents upon a search warrant.  So, he has very extensive powers, we increased the penalties so that if you breach the Trade Practices Act you can be liable for $10 million fines or triple the profit you have made, whichever is the greater and we did that in 2006.  But if he requires any powers in addition to the incredibly extensive powers, of course the Government will be only too willing to do so.  I think what is going on at the moment, as I listen to Mr Samuel, is that the international prices come off and the Australian price, he says, hasn’t followed it down - well it should.  And he’s looking at that and those companies that have not followed the international price down should be named, and if he can find evidence of that he will name them and then consumers will know the companies to avoid.

JOURNALIST:

If they are all doing it then what effect does that have?

TREASURER:

If they are all doing it that is collusive behaviour and that would lead to fines of $10 million or triple the profit they expect to make.  And I would expect Mr Samuel to bring proceedings against them.

JOURNALIST:

Well, what if it is sort of tacit collusion in a sense, with very little documentation involved?   How do we prove this case against the oil companies?

TREASURER:

Well, the ACCC can enter their premises, seize their books, seize their emails, seize their company documents, seize their marketing plans, require their executives to give evidence, and you know, they have got full powers on search and seizure that you would expect.  It is a question of using those powers to get proof. 

JOURNALIST:

Collusion as you know with the recent Federal Court decision, it is very, very hard to prove isn’t it?

TREASURER:

Well, I don’t want to go through that decision in totality, except to say I know that the ACCC is looking at appealing against that decision and that if there are grounds for appeal then I think it should do so.

JOURNALIST:

The RACV here in Victoria has renewed its calls for the Federal Government to take off its double dipping in tax.  Why won’t you do that?

TREASURER:

Because the Federal Government doesn’t double dip.  The Federal Government has an excise of 38 cents which has not moved since 2001.  It is the fourth lowest in the world in terms of taxation.  The only level of government that has a value added tax, which varies according to price is State Government.  Now, let me stop you here.  There is one State Government in Australia that has a scheme to subsidise petrol – that’s Queensland: 8 cents a litre.  I would encourage other State Governments to follow Queensland.  But it is only the Queensland Government that actually has that scheme in place.

JOURNALIST:

What the RACV is talking about is the GST, in effect the GST is calculated from the entire price which includes taxes.

TREASURER:

Yes, and every dollar of GST goes to a State Government.  And one of those State Governments uses some of its GST to cash-back to motorists - the Queensland Government.  But, unfortunately the Victorian Government, which receives all GST on all petrol sales, doesn’t.  It is not a question of the Federal Government double dipping anything.

JOURNALIST:

Well let me rephrase the question then, why don’t you then just make the GST on the actual price of the petrol before the tax is included?  Then you can act.

TREASURER:

Well, the Commonwealth Government did.  It cut its petrol excise from 44 cents to 38. Cut it, so that when the GST went on the tax would be the same.  The GST then rises in line with the petrol and the State Government gets the windfall.  One State Government uses that windfall to cash-back the motorists – the Queensland Government.  Unfortunately, Victoria doesn’t.  Now, whatever reason but if you would like somebody to cash-back the GST effect on petrol you should ask the State Government, which received the GST, to cash-back.

JOURNALIST:

Treasurer, Phil Burgess says the ACCC shouldn’t be involved in a review of broadband plans because it effectively favours the G-9 plan.  What do you think?

TREASURER:

No, the ACCC is an independent market regulator which has more expertise in the area of access and pricing than any other Federal Government instrumentality or agency and that is why it is very important that it is engaged in all of these pricing issues.  Now, the point I would make to Telstra is that Telstra is one company, like every other company in Australia.  Every other company is subject to the ACCC.  Telstra can’t say that it alone will not be subject to the ACCC.  Imagine if Shell came out and said, ‘we shouldn’t be subject to the ACCC in relation to petrol prices’. Shell would be howled down.  And Telstra comes out and says what we shouldn’t be subject to the ACCC in relation to telecommunications prices?  You have got to think very carefully what Telstra is saying when it says that.  I think it is important that Telstra understands that point.  In this country, all companies are subject to the ACCC regulation. 

JOURNALIST:

Do you think Telstra needs to stop shooting off at the mouth?

TREASURER:

Well I think Telstra has to understand how things work in Australia.  You know, when Mr Burgess came to Australia he should have known that in this country you have an independent regulator and all companies are subject to that regulator.  It is no point coming into Australia - knowing what the regulatory system was - and saying that Telstra should be given an exemption in the way that no other company is.  That is my point, there has got to be equality here. 

Good, thanks very much.