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 08/08/2007

Interview with John Miller & Rod Tiley
4BC

Wednesday, 8 August 2007
5.40 pm

SUBJECTS: RBA decision on interest rates

JOURNALIST:

Mr Costello good afternoon.

TREASURER:

Good afternoon, good to be with you.

JOURNALIST:

Kevin Rudd has accused the Prime Minister of breaking a promise to keep interest rates down.

TREASURER:

Well you would expect Kevin Rudd to make a political point and that is what he is doing.  The reality is that the Government’s record is there for all to see, it is true that interest rates will go up 0.25 of 1 per cent and that the standard variable mortgage interest rate would be about 8.3 per cent as a consequence of today’s decision.  But you have got to remember that that is lower than the mortgage rate ever was under the Labor Party.

JOURNALIST:

I think the lowest they had was what, 7.5, Treasurer?

TREASURER:

The lowest that the Labor Party ever had, during the recession I think, it was about 8¾ and the highest the Labor Party had was 17.  And the average of the Labor Party was 12¾ per cent for the home mortgage rate.

JOURNALIST:

You have been quoted today in our news reports as saying that the reason the interest rates have gone up is because the economy is going so well.  Wayne Swan on the programme was dismissive of that this afternoon.

TREASURER:

Well you know Wayne, he never lets a fact get in the way of a political point.  But the Governor of the Reserve Bank issued a statement today and the statement is the reasons for the decision and I will quote a bit to you: ‘Domestic economic data in recent months have signalled a pick up in the pace of growth in demand and activity.’  So the reason why the Bank has moved is because the economy is picking up.  It was already very strong but it is picking up further and that is the reason why they move.  Now, I acknowledge for many Australians who are paying a mortgage this is not a welcome thing, but the reason is not because the economy is weak, but because the economy is strong.

JOURNALIST:

Treasurer, the Prime Minister made a comment today that this interest rate rise would hurt some people who had housing loans.  Do you acknowledge it would hurt you know, a lot more than some?

TREASURER:

I think the point that he was trying to make is of course, there are some people who have paid off their homes.  There are some people who are net savers.  That is, their savings exceed their borrowings so if you happen to be somebody who has paid off your home mortgage, you are a net saver, then you won’t be affected.  In fact, you would actually get higher interest on your savings.  But of course, for people who are buying a home, who are borrowers, who are mortgagees, then of course it will affect them very considerably.

JOURNALIST:

Another question has been raised with us by listeners this afternoon has been why is it that the Reserve Bank tends to rely almost solely, or if not solely, on interest rates as an accelerator or a brake for the economy.  Surely there has got to be better ways of doing it.

TREASURER:

Well, it is a good point really.  The interest rate lever can be viewed as the accelerator or the brake.  And it is a bit of a brake that has been applied here because the economy is picking up.  Of course, if the economy is in recession as it was in the 1990s, then it can be used as a bit of an accelerator to try and stimulate things.  We haven’t been in recession since the early 1990s, we have had a long period of economic growth, the growth is picking up and when you consider that we have had 11 years of continuous growth and 2.1 million new jobs, the interest rates setting here is much lower than it was even when the economy was far worse, which shows that things have improved.  If I use the car analogy, you are applying a bit of a brake but your car is a much newer, faster car then it was in previous times.

JOURNALIST:

Well that is an interesting analogy.  Do you foresee any further interest rate rises between now and the end of the year?

TREASURER:

I think the important thing is to keep inflation in check and we want to keep it within our band.  And I think it is well within our band, which is between 2 and 3 per cent.  So, so long as it is within the band and in the medium term, say over the next 12 months, is continuing to be in the band, then that will keep pressure off interest rates.

JOURNALIST:

While the rates have been, as they are, as low as they have been pretty much right throughout the Howard Government’s reign, you have obviously been able to use that as a terrific lever politically.  With this 0.25 and admittedly it is only a quarter of 1 per cent, but do you see that you know, Labor is going to get some points on you over this?

TREASURER:

Well look of course, Labor will try and take political points, they are entitled to, that is what they are in the business of doing.  But I think when people think about this: that this is a strong economy where practically anyone who wants to get a job can get a job.  We have grown for 11 continuous years, which is the longest period of continuous economic growth ever recorded in Australia, and viewed in that kind of a situation to have a home mortgage rate which is lower than the rates were even during recession shows you that we have raised the speed limits of the Australian economy and I think that is a welcome thing.  Now, could Labor do it?  Well I don’t think they can.  You have got Mr Rudd who has got no economic experience.  Wayne Swan who has no economic experience.  It is not as if they are talking about policies which would make a difference.  In fact, Kevin Rudd today came out and said his policies are exactly the same as the Government’s.  And I took him up on this in Question Time.  And I said to him, his dearest wish is to produce the Liberal Party policy.  Well I don’t think we need Kevin to produce the Liberal Party policy.  The Liberal Party can produce the policy.  So it is not as if Labor has actually got a policy or something alternative they would do and I think in those circumstances people will think to themselves, well we better have the trusted economic managers.

JOURNALIST:

Can you and John Howard win the next election?

TREASURER:

Well we are behind at the moment, the polls tell you that, and there is no hiding from that fact.  But I don’t think the election is decided, I think the election has quite a way to run and I think either team could win the election.

JOURNALIST:

Thank you for your time, Mr Costello.

TREASURER:

Great to be with you.  Thanks John, thanks Rod.