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 25/10/2007

Doorstop Interview
Kincoppal School, Vaucluse
Sydney

Thursday, 25 October 2007

1.25 pm

SUBJECTS: Mortgage interest rates, global financial markets, inflation

JOURNALIST:

(Inaudible) are you going to butt out of the banks' business?

TREASURER:

I am sorry?

JOURNALIST:

Are you going to butt out of the banks' business?

TREASURER:

Well, I am going to make points that are important to economic management and it is true that there has been a big fallout from sub-prime lending in the United States but that is no reason for banks to move standard variable mortgage interest rates in Australia. The banks in Australia have a large deposit book, they are well capitalised, they are extremely profitable. And there is no reason at all why an Australian bank would have to move a standard variable mortgage interest rate as a consequence of what is happening in the United States. It may well be that the level of discounting is reduced and it may well be at the margins in relation to some business lending - there would be an effect - but not in relation to standard variable mortgage interest rates.

JOURNALIST:

Treasurer Merrill Lynch has announced $7.5 billion in sub-prime related write-downs last (inaudible). Is it too early to say the crisis has passed?

TREASURER:

I think the sub-prime crisis has a long way to go in the United States. It is plain there have been huge losses in relation to lending. The place where all of those losses will fall has not yet been determined, that is, we know there are further losses in the system. We know that other financial houses will be holding the ultimate risk and there is still a lot to go before all of those financial houses fully identify their risks, particularly in relation to onlending and derivatives. And so I think this crisis in the United States has quite a way to play out. It could well affect the real economy in the United States - housing turning down, possibly the economy itself turning down and it re-emphasises that at a difficult time like this it is important that we keep our economic management strong, in experienced hands, and that we keep Australia's economy growing strongly.

JOURNALIST:

Treasurer another rate hike would stall employment growth here, is that a view you agree with?

TREASURER:

Well employment growth has been very strong and we are now at 30-year lows in relation to unemployment. The task is to continue to grow the Australian economy. We are in the longest economic expansion Australia has ever experienced. Whilst other countries went into recession over the last 11 years Australia continued to grow and the trick is to make sure we continue to grow. Now we can keep unemployment low as long as we have a good industrial relations system. But if you want to turn your back on this industrial relations system, you want to go back to union control and union demands, all of this good work will be undone.

JOURNALIST:

Treasurer, will another rate hike slow down employment growth?

TREASURER:

Well I am very focussed on continuing economic growth and continuing employment growth and I believe with a good industrial relations system we can do it.

JOURNALIST:

Joe McDonald has just been found not guilty of trespass in WA. Should the Government perhaps back off on some of the allegations they have been making against unions?

TREASURER:

I think Joe McDonald has a long and colourful history as a union official and I think if you were to speak to any of the builders in Perth they would tell you that life on the Perth building sites has not been peaceful and highly productive in the way that we would want it to be over a long period of time. Our ABCC - our Building and Construction Commission - has reduced the incidence of industrial disputation on those building sites. It is absolutely critical that it be preserved. The Labor Party wants to abolish it after a period of time. That would take Australia's building sites back to the bad old days and we don't want to go there.

JOURNALIST:

Treasurer the Merrill Lynch situation comes on the top of warnings from Citibank and also Ben Bernanke, are you concerned there is still risk to the Australian economy?

TREASURER:

Look there are big risks to the US economy. The ultimate fallout from the sub-prime has not yet been fully identified. There are financial institutions that are holding risk that haven't yet identified the full dimension of that risk.

JOURNALIST:

What about the Australian economy Treasurer?

TREASURER:

That will have an effect on the US economy. It will have a downturn in relation to US growth and if the US turns down that will affect global economic prospects. Australia is not immune from global economic prospects but we are much stronger today than we used to be 10 years ago and that's where we want to keep it.

JOURNALIST:

(Inaudible) how will a rate rise play for the Government in November?

TREASURER:

I am sorry?

JOURNALIST:

How will a rate rise in November play for the Government?

TREASURER:

Well let me make this point - the Government's policy is to keep inflation low and over the course of this Government it has averaged 2½ per cent, compared to Labor's average of 5.2 per cent. The various measures that were released yesterday were between 2 and 3 per cent, the CPI below 2 per cent and other measures closer to 3 per cent. To keep inflation between 2 and 3 per cent over the course of the cycle is our aim and to be able to do that with unemployment at a 30-year low shows how far the Australian economy has come. But we couldn't keep inflation this low when we had unemployment double this rate. And the fact that it's now at this rate with the lowest unemployment in 33 years shows you how far we've come in this country.

JOURNALIST:

Treasurer are you saying the Reserve Bank would be wrong to raise rates in November?

TREASURER:

I am saying that it is the Government's policy to keep inflation contained. We have set the goal at 2 to 3 per cent. We have met it over the last 10 years and we are now meeting it with unemployment far lower than the Australian economy used to be able to carry. And that's because of economic reform. But if you turn your back on industrial relations reform in Australia you will turn your back on low inflation and continuing growth. Now I heard Mr Rudd saying earlier today he is in favour of things that will keep inflation down. If that's the case he will get rid of his industrial relations policy.

JOURNALIST:

(Inaudible) Treasurer that was not the question. Will the Reserve Bank be wrong to raise rates in November?

TREASURER:

Well as you know, having put the monetary policy in place and having administered the policy over the last 11 years, I haven't in the last 11 years foreshadowed movements in monetary policy and I'm hardly likely to do it now.

JOURNALIST:

Waiting until December won't hurt though Treasurer would it?

TREASURER:

Well my answer to your question is the same as the previous answer.

JOURNALIST:

Where are you going to be on Melbourne Cup Day? What are your plans?

TREASURER:

I will be campaigning I would think. I don't think I would be at the Cup unfortunately. Okay thanks.