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 09/08/2007

Press Conference
Parliament House, Canberra

Thursday, 9 August 2007

12 noon

SUBJECTS: July Labour Force figures, economic management, infrastructure, States, pensioners

TREASURER:

Last month in July 21,800 Australians received jobs and unemployment remained at the lowest level for 33 years.  The 21,800 Australians who received jobs, or who were able to get jobs in July were almost entirely able to get full-time work.  And over the course of the last year 250,000 – more than 250,000 – new jobs have been created in Australia.  That is a quarter of a million new jobs, and over 200,000 of them were full-time.

Now the good thing about today’s figures is that for the first time these figures are taking into account the Government’s Welfare to Work reforms which are encouraging more single parents back into the labour market and encouraging people who otherwise would have gone on disability pensions to look for work.  So we are encouraging more people into the labour market, and they are finding jobs.  We are pressing now towards full employment and the fact that for 17 consecutive months unemployment has been lower than 5 per cent shows you that we are nearing our goal.  Our goal should be this: work for every Australian who wants to find it.  And 21,800 Australians were able to find work, new work – new jobs, full-time jobs in the month of July.

The participation rate, which measures the percentage of people of working age who want to participate in the workforce, is at a record high of 65 per cent.  So we now have a record number of Australians who want to participate in work and a 33-year low for those unable to find work and an increase of 250,000 jobs over the last 12 months. 

This is the object of economic policy – to allow people the opportunity to work.  Without a job and without an income it is very hard to maintain your position in society, to feed a family or to educate kids.  And improving labour market outcomes, improving job creation is absolutely essential for our future prospects.

One last point.  When you look at the job creation around the States, it is pretty evenly spread.  Some of the resource States are doing well but there are other States doing even better in terms of job creation over the last 12 months.  So whilst mining is an important industry for Australia – there is no doubt about that – these jobs are not all the consequence of the mining industry and they are not all in mining States.  In fact it is very broadly based indeed and that is good news. 

JOURNALIST:

Treasurer, are you surprised considering the number of people who are coming, affected by your Welfare to Work changes that unemployment stayed steady and that you actually had a big increase in full-time employment?

TREASURER:

Yes, we thought that with our Welfare to Work changes the unemployment rate would rise and we thought that because more people would be looking for jobs.  These are people who traditionally would have been on a pension of some kind, when you encourage them to look for work you would assume that they wouldn’t find work within a short period of time and therefore the unemployment rate would go up.  That hasn’t happened, although it is still early days and there still could be a factor which we see playing down over the months to come because we did anticipate that this would produce a rise in the unemployment rate.

JOURNALIST:

How do you disaggregate those figures?  How do you know that the welfare reforms are (inaudible)?  Is there another way of measuring it?

TREASURER:

We can’t tell you from these figures how many people who were on welfare and are now looking for work actually received it.  We can’t disaggregate it that far.

JOURNALIST:

Have the dole figures gone down?

TREASURER:

But what we can say is that the measure has put more people looking for work and the measure has shown that there has been no rise in unemployment.  Now, you know, there could be lots of ways in which the figures are compiled or composed I should say, but we did expect that there would be some increase in the unemployment rate and there still may be.  It is just too early to say that there won’t be.

JOURNALIST:

But (inaudible) that we have had, I mean, it is a five, you’re sort of put a punt on a 5 per cent unemployment rate as the year average, that is sort of looking a little unlikely now, isn’t it?

TREASURER:

Well one of the reasons for that was this Welfare to Work change.  We expected that it would spike the unemployment rate.  Now, it is very early days and let’s hope it doesn’t.  Let’s hope it doesn’t.  Wouldn’t it be wonderful if, having encouraged more people to move off pensions, they were all able to find work?  That is, that the unemployment rate didn’t go up.  That would be a wonderful outcome.  Our assessment always was that it would take some time for all of them to get into the labour force but July was a great success.  Let’s hope subsequent months are as successful. 

JOURNALIST:

Treasurer, do these strong figures vindicate the Reserve Bank’s decision on Tuesday?

TREASURER:

I don’t think you look for post-event vindication in relation to these things.  The reason why the Reserve Bank moved the cash rate yesterday, it said, was because of the strength of the economy, that was the reason.  Now, the economy is strong; witness the fact that unemployment is at the lowest level for 33 years.  A strong economy is actually a good thing.  That is what you are punting for in economic policy and you are punting for a strong economy because it gives people the opportunity to get a job.  And there are more Australians that have jobs now than ever before and that continued in the month of July.  So the task is to keep the economy strong.  That is the task now.  Nothing undermines a family and nothing undermines an economy like joblessness.  When a family loses the earner everything begins to cascade in on itself. 

JOURNALIST:

Are you the victim of your own success in that we have such a tight labour market, people are saying there might be another interest rate rise in the year, maybe December-January?  Is that one of the problems you are facing, that you (inaudible) too well?

TREASURER:

Well look, I am not going to comment on some of the commentary, some of it is well based and some isn’t.  But the object of economic policy is to try and create an economy where people can find work.  When I became Treasurer, I think unemployment was well over 8 per cent, double what it is today.  And nobody thought that you could actually get the unemployment rate below 5 per cent.  It wasn’t thought possible.  We have gone below 5 per cent and we have been there for 17 consecutive months.  This is what we have been aiming for.  This is where we have been trying to go.  There are other countries around the world that are trying to get to where we are, where people who want to work can find work.  And having gone down that track and being within sight of our goal, we are not going to turn around and go back now, that wouldn’t help people.  I read some people say: ‘oh well, a little bit of unemployment around the place would help because it would take pressure off inflation’, and it probably would.  But that is not where we want to go.  We want to go to a position where people can find work and jobs. 

JOURNALIST:

Welfare groups and advocates including your brother today have come out in unison calling for pensioners to be given an increase.  Treasurer, will the Government give pensioners a rise?

 TREASURER:

Oh yes, the Government will.  The Government will give the next rise to pensioners in September and the last rise was in March.  We have a rise in the pension every six months and the rise in the pension is in excess of inflation. 

JOURNALIST:

What do you say to those people who think that the pension is too low at the moment?

TREASURER:

Well the pension has been increased twice a year and has been increased in advance – higher – than prices.  That is, in real terms it is being increased.  And those rises are taking place twice a year.  And the rises are under this Government, far in excess of anything they have been under previous governments. 

JOURNALIST:

Treasurer, you talk about the need to get to full employment.  Do you see full employment as being the number (inaudible) with a three in front or it, or a 2 in front of it, where do you see that, that rate getting to a (inaudible)?

TREASURER:

Well, there should always be a number which represents those people who are between jobs, retraining, waiting for the kind of job that they want to come along, maybe relocating.  So there will always be a number.  What that number is is a very interesting question.  You know, we used to think it was 5 or 6.  We now know that it is possible to be down at 4.3.  Can you take it to 4?  We don’t know.  This is territory we haven’t explored in Australia.  I know this: that it will be lower with a good industrial relations system, that certainly will lower your structural unemployment rate and I think that has been a big part of where we have been going.  But we will just have to feel our way here.  We are now moving into waters that haven’t been chartered in the last 33 years or 35 years.  The experience before was quite a different experience because it was a very different economy and we can’t really take that experience to the modern times.  So we will just have to feel our way and keep on going.  

JOURNALIST:

Is it appropriate for Roger Corbett to be commenting on the interest rate move yesterday?

TREASURER:

Look, Roger is a member of the Board.  Board members are asked their views from time to time.  It is a free country and they are entitled to speak.  And the only thing I would say is that the considered position of the Board is what is in the statement.  There is no real need to go behind and interview board members individually because if you want to know what the Board thinks it is in the statement.  Now, I have no problem at all with Roger doing interviews and I have no problem at all with what he said.  I thought what he said was quite sensible. 

JOURNALIST:

Treasurer, would the Government be in better shape if you were leader of the Liberals and how grumpy are you with the polls at the moment?

TREASURER:

I think I will pass on both questions. 

JOURNALIST:

Treasurer, back to Welfare to Work.  Have you got any idea what the monthly inflow into the labour force is, people who would otherwise have been on welfare?

TREASURER:

I can’t give you the figure now and I can’t even break down from the ABS the number that were taken into account because they were seeking to enter for the first time.  What the ABS just does, it samples who’s trying to enter.  It doesn’t say, are you trying to enter because you are previously on welfare?  Are you trying to enter having not previously been on welfare?  And then of course, even amongst those who have previously been on welfare, there will be some who are previously on welfare trying to enter.  Nothing to do with Welfare to Work, they have just decided to come off.  They might have been eligible to stay on.  And then there will be some others who weren’t eligible to stay on so I can’t break that down for you.

JOURNALIST:

Treasurer, the Prime Minister was reported to us as having said in the Party Room on Tuesday that despite whatever the polls said, he didn’t feel fundamental disillusionment, that he wasn’t getting a negative reaction around the country.  What reaction are you getting as you move around?  Do you think that it is in line with the polls?

TREASURER:

I think, that as I move around, people report to me that they think economic management is important, that the growth of the economy has been important,  it is giving opportunity for their kids to get work.  They report to me that there are a number of things that have helped family finances, like the Family Tax Benefit and the tax cuts.  I get a lot of response over the Superannuation changes as you can imagine.   I don’t get reports of particular economic policies they object to.  I make this point: that even the Opposition is doing its best to endorse the Government’s economic policy.  Mr Rudd saying there wasn’t a slither of light between him and the Coalition.  Mr Rudd is saying he wants to implement our policy, but his policy is the mirror image of our policy; that whatever we do he wants to do.  Now, that is flattering that he wants to implement our policy but the point I would make is that he says that now, but if he got elected of course the unions would make sure that he implemented a very different policy.  He can talk the talk but he doesn’t walk the walk.

JOURNALIST:

What about your Budget forecast Treasurer, the employment forecast looks to be blown out of the water (inaudible).  Does that mean that you are going to have a lot more income than you thought?  You are going to have all these (inaudible) this month, 21,000 extra workers paying tax?

TREASURER:

And this month is July and our forecast is the average between July and June of 2008, so let’s, before we proclaim victory, let’s wait for a little more than one month and when you say blown out of the water I mean that is one way of saying the outcome is significantly better than what we forecast, and that is a very welcome thing.

JOURNALIST:

(inaudible) highly likely, given recent, the last three or four financial years?

TREASURER:

Well, if your point is that the economy is done well in the last three or four years and we have in some respects exceeded Budget forecasts, that is true.  It wasn’t always that way in Australia you can recall.  You can recall before our Government, Budget forecasts were regularly missed.  I recall the Budget forecast of a surplus Budget that came in $10 billion short myself.

JOURNALIST:

Are you comfortable with the yardstick set by the Prime Minister yesterday that any Government spending is responsible so long as it comes from the surplus?

TREASURER:

Well, here is what I would say: the Budget should be in surplus.  The Budget should be in surplus after you have completed all recurrent spending and capital spending.  That is what it should be.  That is that the Government is saving, the Government is not taking money, it is not borrowing money, the Government is actually adding to the savings.  This is the point I make.  This is what is happening at the Commonwealth level and Federal Labor supports that policy but State Labor doesn’t.  This is the big difference – at a time when governments should be running surpluses, there is a level of government that isn’t running surpluses.  A very, very big difference has opened up here between the Labor level of government and the Coalition Government.  The important thing is that we keep our Budget in surplus.  I would argue the important thing is the States keep their Budgets in surpluses, but if you are worried about surpluses I wouldn’t start with questions for the Commonwealth Government.  I think I would start with questions to that level of Government, which is running no surplus at all.

JOURNALIST:

But Treasurer, isn’t the point what you spend on rather than the surplus or borrowing, isn’t the point  that they are spending on infrastructure and you are spending on tax cuts which are more inflationary?

TREASURER:

No we are spending on infrastructure.

JOURNALIST:

But after the tax cuts, how (inaudible)?

TREASURER:

Hang on, no. How can that be right?  Can you explain that to me?

JOURNALIST:

Well that is what the economists are saying.

TREASURER:

I don’t think so.  We are spending on infrastructure.  We announced $22 billion of road and rail, $10 billion of water, we have announced in relation to defence infrastructure something like $25 billion.  The Commonwealth infrastructure program would dwarf the State infrastructure program.  It is just that we are funding it, along with the current expenditure, out of our resources.  What the State governments do is they can’t live within their Budgets and they are borrowing.  They will tell you, oh, the borrowing was going off the infrastructure, they can’t actually account for that.  The borrowing just funds the difference between what they receive and what they spend.  That is all it does.  You can say, oh, they are borrowing only to this part of the expenditure, not that part of the expenditure.  At the end of the day when a government has finished its spending, whatever it is on, it has to borrow the difference.  The difference is we spend within our means and State governments don’t.

JOURNALIST:

Treasurer, you just said, mentioned $10 billion on water which hasn’t been spent, the $22 billion which is Auslink Part II, which is another two years away, and you put $6 billion worth of tax cuts in to the economy starting from the start of the year. Are you saying that your planned infrastructure is all well and good but that $6 billion has had no impact on the economy at all?

TREASURER:

Well, if you want to go through it I mean we are in the $15 billion Auslink I and we have budgeted, for the $22 billion Auslink II.  So we have a huge infrastructure programme going on and we have budgeted for it across the financial period.  Water – the $10 billion is across several years, but it starts straight away; telecommunications with our Broadband Connect; health, the HEEF – $5  billion investment which is going to occur this financial year.  I am just making the point that the Commonwealth Government is engaged in huge infrastructure spending but still living within its means.  That is the point I am making.

JOURNALIST:

With respect, I mean (inaudible) seven year programme.  Queensland alone is spending $14 billion on (inaudible) infrastructure, I bet you Queensland spends more than your Government does?

TREASURER:

Well, the $70 billion which the States are borrowing is a five-year borrowing, Tim.  So I am comparing,

JOURNALIST:

(inaudible)

TREASURER:

No, no.  I am comparing a five-year borrowing of the States with a five-year surplus at the Commonwealth level.  And I am making the point that there is one tier of government over the next five years that will attend to all its infrastructure spending and all of its recurrent revenue and will build up over those five years $60 billion worth of savings.  And there is another level of government which after its recurrent expenditure and its capital expenditure will borrow $70 billion.  The difference isn’t that one level is spending on infrastructure and one isn’t.  The difference is that one funds out of the recurrent revenue and the other doesn’t.  Let me go on to make another point.  It was not always thus you know.  You know that the States in fact weren’t borrowing for the five year period up to 2005-06.  This is new borrowing.  If the States say now we have to do this why was it that they were able in the past to do it without these borrowings?

JOURNALIST:

They weren’t doing their job, but now you’ve got bottlenecks which are a constraint to the economy which is putting pressure on interest rates?

TREASURER:

Which bottlenecks do you have in mind there?

JOURNALIST:

Dalrymple Bay.

TREASURER:

Dalrymple Bay?

JOURNALIST:

Well that’s one but….

TREASURER:

Why do you think it will never fall from the mouth of Mr Swan, when he talks about an infrastructure bottleneck, why do you think the words Dalrymple Bay will never fall from his lips?  Next time you hear Mr Swan complain about infrastructure bottlenecks ask him to say the words Dalrymple Bay.

JOURNALIST:

(inaudible)

TREASURER:

Peter Beattie should have cut his recurrent expenditure so that he had enough money to invest in relation to Dalrymple Bay.  That is what he should have done.

JOURNALIST:

(inaudible)

TREASURER:

Well look, let me tell you Phil, I mean if Peter Beattie asked me to do his next Budget I will do it for him, but I do have a few other things on my plate as well.

JOURNALIST:

Treasurer, shouldn’t the Commonwealth, if it is concerned about (inaudible) spending on infrastructure, shouldn’t the Commonwealth run a larger surplus to offset this looser fiscal policy?

TREASURER:

This is my point.  You know, at one level the Commonwealth should be running larger surpluses, but on the other level, of course, it is quite good policy for the States to be running deficits.  When you are looking at the overall economy what matters is whether you are building savings or whether you are building debt.  And let me make this point: if the Commonwealth ran larger surpluses and the States ran larger deficits the net effect on the economy would be zip, zippo, it would be completely on balance.  So if I may say so, but I think Commonwealth surpluses are good and Commonwealth surpluses would be more effective if they weren’t completely negatived by state deficits.  If Commonwealth surpluses were larger and State deficits were larger there would be no net fiscal impact.  Commonwealth surpluses were larger and the States maintained their position you might have an improvement.  The only point I am making, you know, I do pick up a little bit of confusion in some quarters of the press which have said that the Commonwealth should be building bigger surpluses but don’t worry about the States building deficits.  When you are looking at an economy a government is either building savings or it is building debt.  What is happening at the moment is that one level of government is building savings and another is building debt and they are working in different directions.

JOURNALIST:

But didn’t you just say that you don’t need to go behind the Reserve Bank Board decision that their reasoning there is (inaudible).

TREASURER:

I am not going into the monetary policy argument again here, I am making the point, when I am asked, would Commonwealth surpluses, bigger Commonwealth surpluses have an effect on the economy?  The answer is no because they have completely undone by State deficits at the moment, that is the point I am making.  I don’t, this is not an argument, they are facts.  I mean the Commonwealth saved $60 billion and the States borrowed $70 billion, the net effect of government in the economy is borrowing.  Now, the good news is if we weren’t saving $60 billion then the $70 billion of borrowing by the States would have an even more negative effect, that is the good news that we are counteracting that.  But my point is the $60 billion would be far more effective if it wasn’t offset by a $70 billion borrowing.  These are not political arguments, they are economic facts.

JOURNALIST:

Treasurer, if Australia is borrowing money on global markets, how could that possibly push up interest rates in Australia?

TREASURER:

Well the States are borrowing on, I don’t know if they are borrowing on global markets but I would be very surprised if they were.  If the States are borrowing on global markets and therefore adding to the foreign debt of Australia - I just put that on for some other journalists who are here who get worried about foreign debt…..

(inaudible)

TREASURER:

Let me make this point, that if you are out on financial markets borrowing, all other things being equal; you are crowding out other borrowers…..

JOURNALIST:

(inaudible)

TREASURER:

And adding pressure on interest rates….

JOURNALIST:

Treasurer, on a smaller matter.  Do you think it’s financially responsible to fund plebiscites in Queensland so people can articulate their anger about something that will have already been in law by then, when the State election will give them the same opportunity to do that anyhow?

TREASURER:

I can’t see what’s wrong with allowing a person, it is beyond me why Mr Beattie couldn’t allow them to have their plebiscites in the first place.  Secondly even if he doesn’t want the plebiscite, it is beyond me to actually threaten them with fines if they do so, I mean…..And in that circumstance if somebody comes along and says we will let you have a vote I don’t see what is wrong with that at all.

JOURNALIST:

Even if people in other parts of Australia are funding this (inaudible).

TREASURER:

Look can I say the way the tax and expenditure system works is people in various parts of Australia cross-subsidise other people in other parts of Australia all the time.  Let me make this point about Queensland: Queensland had a decent cross-subsidisation through the GST for a very long period of time, I never heard Premier Beattie complain about that.  I heard Premier Beattie saying to the tax payers of Australia, isn’t it an outrage that your taxes could be used for plebiscites in Queensland.  I never ever heard him say once to the taxpayers of Australia, isn’t it an outrage that your GST could be used to subsidise Queensland.  I never ever heard him say that before.  And so when I heard Peter Beattie with a new found concern for the taxpayers of Australia subsidising Queensland I wondered whether he was going to return his GST bonus?

JOURNALIST:

Treasurer, even though that is based on a formula that you all sit down and work out, I mean….

TREASURER:

I am not complaining about the formula.  I administer that formula, but I am just pointing out that the effect of that formula is that taxpayers in some States subsidise taxpayers in Queensland.  Now, you say to me: “well if the AEC runs a ballot in Queensland taxpayers in some States would be subsidising taxpayers in Queensland.” I would say that is quite right.  But it is not the first time this has happened and it has happened with a lot larger sums of money than the AEC.

JOURNALIST:

(inaudible) not going to change anything, it is not binding.

TREASURER:

Oh well, let’s see what happens.

JOURNALIST:

Just lastly Treasurer, what do you say to pensioners who believe the Government is not doing enough (inaudible)?

TREASURER:

What I will say to pensioners is this: every six months there is an increase in the pension and that increase in the pension has been higher than the Consumer Price Index for a number of years.  I would also say to pensioners, out of the recent Budget, $500 per pensioner was paid to each and every pensioner in Australia - aged pensioner in Australia, as a dividend.  This is a payment that has never been made before; there was a smaller payment some years ago.  I would also say to the pensioners that the Government has now increased the private health insurance rebate and it can be as high as 40 per cent for older Australians.  The Government has increased the senior Australian tax offset.  Now I know if you live on a pension it is not a high wage.  I know that, of course I know that.  But I also say that the indexing of pensions, to male total average weekly earnings, the payment of the bonus, the increase in the private health insurance levy have all been important for aged pensioners in Australia.  Thank you.