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 08/07/2007

Interview with Barrie Cassidy
Insiders

Sunday, 8 July 2007

 

SUBJECTS: Iraq, aid, defence, housing affordability, Indigenous emergency, drugs in AFL

CASSIDY:

To our program interview now, and our studio guest, the Treasurer, Peter Costello. A lot to talk about with housing affordability and welfare reform getting a lot of attention this week. And of course, courtesy of Brendan Nelson - oil and Iraq. Treasurer, good morning and welcome.

TREASURER:

Good morning Barrie.

CASSIDY:

There's not much point in denying, really, that oil is a part of the equation in Iraq, surely?

TREASURER:

It's not the reason for Australia's engagement as part of the coalition in Iraq, let's be clear about that. No connection whatsoever. And it's not the reason why Australia is staying in Iraq. The reason we are staying in Iraq is that the Iraqis have voted for a democratic government. That government has to be defended and Australia is taking part in helping to train the Iraqi security forces. Now, if al Qaeda and the terrorists of the Middle East can depose this democratic government, that is a huge propaganda victory.

CASSIDY:

We'll get onto the nature of the government in a moment, but on the question of oil and oil supplies, does the guarantee of oil supplies justify the need for a satisfactory outcome in Iraq?

TREASURER:

No. The important thing is to defend the democratically elected government, much more important than oil supplies, if I may say so, much more important than oil supplies is to defend that government because let me tell you, if that government is defeated by terrorism, if the terrorists get a great victory in Iraq, it will destabilise not only the region, but probably most of the Islamic world.

They will move on to other moderate Islamic governments, indeed as they are already. So there is something much more important than oil that is at stake here...

CASSIDY:

More important than oil, but that is not to say that oil is not an issue of some description? Brendan Nelson raised this question on AM. What would happen to those oil supplies if there was a premature withdrawal from Iraq?

TREASURER:

I think what Brendan was talking about was a different point, the point that is made in the security update, that the globe has an interest in energy security. Countries like China have an interest in energy security, growing countries like India have an interest in energy security, and it is possible to see, down the track, that you could have wars over energy if growing industrial powers felt that their interests were being contained.  That is not Iraq, that’s the point.

CASSIDY:

Sure, but what's the answer to that question? What would happen to oil supplies if there was a premature withdrawal from Iraq?

TREASURER:

Well, anything could happen, Barrie, let me make this point: oil can and is produced by a lot of dictatorships around the world, and they do it for money. Oil could be produced under Saddam Hussein. You don't have to have a democratic government to produce oil. If you did, there'd be a lot less oil being produced around the world. That's why I say, to connect oil and democracy is a complete mismatch. This is much more important than oil.

CASSIDY:

Sure but if you were to leave Iraq in a chaotic state, surely that would have an impact on the price of petrol?

TREASURER:

Well, it might. It might not.

CASSIDY:

How would it not?

TREASURER:

But can I tell you, Australian troops don't fight for petrol prices. That's not why we send Australian troops into battle.

CASSIDY:

It's not the major reason, I keep going back to that but it has to be a factor.

TREASURER:

I heard the suggestion even earlier this morning by somebody from Labor that if we adjusted our Iraq policy it might affect the price at the petrol pump. We're all interested in the price at the petrol pump, but Australian soldiers don't risk their lives for petrol prices.

CASSIDY:

You talk about the need for stability in Iraq but that wasn't the original justification, was it? The original justification was weapons of mass destruction.

TREASURER:

That's true. Our Government, like the governments around the world, and like the UN, believed that there was a very real risk of weapons of mass destruction in the hands of Saddam Hussein, who after all, had already used weapons of mass destruction. It wasn't just our government; by the way, it was the Labor Party as well believed there were weapons of mass destruction.

CASSIDY:

So the coalition went in on a false premise?

TREASURER:

The intelligence as it turned out was not right. Having said that, nobody would cry any tears about the end of Saddam Hussein. Nobody in the world, I don't think. Perhaps al Qaeda might, I don't know.

CASSIDY:

But in retrospect it's embarrassing, isn’t it, to accept that the coalition went in there on a false premise?

TREASURER:

Well, it went in on flawed intelligence, I make that point. I think that's been made on numbers of occasions.

CASSIDY:

Had the intelligence been correct, the coalition wouldn't have gone in?

TREASURER:

That's not entirely clear either. But let's not argue the what if's.

CASSIDY:

It's a pretty big 'what if?'

TREASURER:

The point is this: that Saddam Hussein, one of the great terrorists of the modern age, having been deposed, democracy came to Iraq. That was an inordinate step forward. Democracy came to Iraq. People queued with the threat of bombings and killings to vote and now have a democratic government. Can a democratic government survive in Iraq? Well, for the sake of the Middle East and the world, the answer has got to be yes. And any premature withdrawal that means a victory for al Qaeda threatens security everywhere. That's the point.

And in this situation, nobody who thinks about the long term interests of the Iraqi people, of the region or the world, would want to see the collapse of that government.

CASSIDY:

What sort of a democratic government is it, though, that supports the Shiite Islamists in a fight against the Sunnis, this government is closer to Iran than the previous regime, closer to al Qaeda?

TREASURER:

Well, that's the thing about democracy. When you give people the vote, you can't determine the outcome. But notwithstanding all of that, it's much better to give people the vote, because just as they can vote governments in, they can vote them out.

And here's what we're fighting for, I think, not just in Iraq: can democracy survive in the Middle East? Because I'll put to you that the Middle East will never resolve the endemic problems that it has – and I'm not just talking about Iraq, I'm talking wider than that – until you can see a system of government which takes into account the views of people, which is responsible to the ballot box, rather than the bullet.

CASSIDY:

But what has democracy done for the Palestinians and for the Iraqis?

TREASURER:

Of course in Palestine you now have a situation where you have competing political movements. And they will have to resolve those points but would anybody say that we should reverse, that we should deny Palestinians the ballot? Would anybody argue that you would get a more liberal economic order by abolishing democracy? I don't think we would. I don't think most of the world would.

CASSIDY:

The Prime Minister's speech on Thursday, he said that the country must be prepared for more military operation far from Australia. That sounds both more expansive and more expensive.

TREASURER:

Sure. Well, Australia is now spending a considerable amount of money in peacekeeping and stabilisation operations, Solomon Islands, East Timor. Afghanistan. Iraq. The stretch of the Australian Defence Force is greater than it has been for a generation but the spending on defence is also greater than it has been for a generation. We're up around $20 billion or more in annual spending.

CASSIDY:

Which is a 48 per cent increase since 1996?

TREASURER:

Yes, and the biggest capability upgrade that we've had in a generation, with air warfare destroyers, AWACS, new tanks. This has been a huge upgrade of Australia's defence. If we didn't have a strong economy, Barrie, we wouldn't be able to afford it but the good news is that strengthening our economy is now allowing to us strengthen our Defence Force.

CASSIDY:

We have a strong economy, you say you can afford it. What about an increase in aid? Kevin Rudd is talking about an increase of at least a billion, perhaps $3 billion, and it's designed to create a more stable region.

TREASURER:

Well, you have to be careful here, because defence spending is not aid. If we were able to count defence spending as aid, in fact, our aid budget would show as much greater. But having said that, I announced that we would increased our aid, we're at $3.2 billion now and we're going to take it to $4 billion by 2010. That's $4 billion a year, by the way – a year.

I noticed that Mr Rudd said in his speech that he would also accept that target, that he made that bipartisan and I welcome that. We now have bipartisan agreement on increasing aid to $4 billion by 2010.

CASSIDY:

On housing, and the document that was released during the week that you claim is misinterpreted, it does show, though, doesn't it, that families budgeting are just as stretched now as they were in the 80s?

TREASURER:

No, you have to be very careful. By the way it's not just one document, there's about 100 or more, I think. You have to work your way through all of them. The point that was being made, I don't think this has come out in the discussion, is this: that when you look at the percentage of income that is going on interest payments, there are two factors that are also working into that percentage.

One is the number of people paying mortgage payments on investor housing has gone up. That is, you have more investors. The second is that the proportion of people who have a mortgage has gone up. So if you just look at the bald figures and say the percentage that's going on interest is high, yes, it is high, but there are compositional changes, this is the point that was being made, there are compositional changes inside those interest payments.

CASSIDY:

What are you saying about ordinary home owners, that their interest payments as a proportion of their disposable income is higher now than in the 80s, surely?

TREASURER:

No, not higher than the peak. This is not of owner occupied, owner occupied home owners. That's the point that was being made. Because you've got investors included in that computation and you've got a larger proportion in that computation. But having said that, house prices are high. There's no doubt about that.

The reason why payments on mortgages are higher is not that interest rates are higher – plainly they're not, they're half what they were under the Labor Party. The reason is that the value of housing is greater. And that's the issue, I think...

CASSIDY:

Which is no comfort to people trying to get into the market?

TREASURER:

I think that's the issue that's concerning the first home buyer. I don't think it concerns the second or third home buyer or somebody who owns their house, they actually quite like a high house price, it's the people that want to get in.

I called a Productivity Commission inquiry into this. The Productivity Commission looked at the whole thing, and it said demand is very strong. House prices are high because a lot of people want them, they are in jobs, they have got money. In order to actually get some balance into the price, it is not a demand problem, it is a supply problem. You have got to boost the supply of housing. We need more houses to be constructed, particularly for first homebuyers.

CASSIDY:

You say that's the States' responsibility?

TREASURER:

I think we can go further than that. We need more land release. We have to encourage land release...

CASSIDY:

States' responsibility.

TREASURER:

... And of course, first home buyers are classically the people who buy houses on new housing sites.

CASSIDY:

Sure, but don't you think the electorate wants to hear something from you about what the Federal Government will do and not just a lecture to the States?

TREASURER:

I think we should do is an audit of all land, particularly on outer suburban areas that could be released for new housing.

CASSIDY:

Who should do that?

TREASURER:

Well, I'm going to do this in conjunction with the States. The Commonwealth will look at any land that it has that could be released for housing. We will ask the States to look at any land that they have that could be released for housing. And of course, a lot of this will also be held by the private sector, developers and the like, and we'll try and identify whether there's any reason why those developers are not releasing it. I think if you could actually identify, particularly on the outskirts of the big cities, but there will be some regional centres that would want to be part of this...

CASSIDY:

Do you think the States will cooperate with you on this?

TREASURER:

Well, all we can do is try. Why wouldn't the States cooperate? Why wouldn't a State…

CASSIDY:

They might think you're setting them up.

TREASURER:

Why wouldn't a State, if it was genuinely interested in allowing first home buyers access to the market, why wouldn't it cooperate? And Barrie, at the end of the day, all I can do is try and work with them. If they don't want to work with us, well, they will bear the responsibility of that.

CASSIDY:

We’re running out of time, but on welfare reform, why are the details not out there yet in terms of the quarantining? There seems to be a lot of confusion. People are trying to make up their minds as to whether they support this policy or not and they don't know how it's going to work.

TREASURER:

Well I think people do support it, Barrie, but there are three phases I think. There's the emergency phase, there's normalisation, there's long term. During the emergency phase - and we have a group of people that are assisting us on this - look, the important thing is to act. Will all of the details be known in advance? Probably not. Will problems arise as we go through it? Yes, quite probably. But with goodwill, I think we can work through them. Barrie, this is a problem that has been around a long time. And let's be frank. It's not going to be fixed in two months or three months. But the important thing is we are now acting. And as we act and as we work our way through it, we'll solve these problems.

CASSIDY:

Now, drugs in sport, and do you get the feeling the AFL is about to shift, to adopt a policy that is to your liking?

TREASURER:

I think the AFL's got a problem. They've got a problem with a couple of very well publicised players. And I think that the message from the AFL has not been strong enough on drugs. The AFL does one thing better than other sports. It tests more. But there's another thing it doesn't do well. When it gets results of those tests, it doesn't act on them to the same degree.

CASSIDY:

What about those tests? Are they foolproof? They missed Ben Cousins.

TREASURER:

Well, let's put it this way: the AFL has picked up 25 people who have tested positive, and three who have tested positive a second time.

Once you get a result that says somebody has been using cocaine or ice, I don't think you can ignore it. I don't think you can ignore it. Full credit to the AFL for doing it. But not so good marks for its response. Once you get a result like that, you've got to do something with it. You can't ignore it. And this idea that we'll let it go the first time, let it go the second time, and then on a third occasion, think about doing something, it's not enough.

I welcome the fact the AFL looks like it's going to reconsider this. There are other sports, I think, that are doing better, such as the rugby league and I'd like to see a situation where all the professional codes move to a stronger anti drugs code.

CASSIDY:

Should something be done to make sure these tests are genuinely random?

TREASURER:

I think they've got to be genuinely random.

CASSIDY:

You have your doubts about that?

TREASURER:

We've got to have full confidence in it and the Australian sports drug agency will work with the codes to ensure people can have confidence.

CASSIDY:

Thanks for your time this morning.

TREASURER:

Thanks, Barrie