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 09/11/2007

Interview with David Speers
Sky News Agenda

Friday, 9 November 2007

4.40 pm

SUBJECTS: Interest rates, unemployment, inflation, economic management, US economy, industrial relations, apprenticeships, Mark Latham, aid

SPEERS:

You have blamed Labor for the 17 per cent interest rates when it was last in government, but you won't accept blame for this week's interest rate rise under this government. Why not?

TREASURER:

Well when interest rates were at 17 per cent unemployment wasn't as low as it is today. Labor couldn't even manage a 6 per cent unemployment rate without putting interest rates out to 17 per cent. Unemployment today is closer to 4 per cent and the home mortgage interest rate is half of 17 per cent - 8½ per cent. And that is lower than at any time under the previous Labor Government and in fact lower than interest rates were when we were in the worst recession in 60 years. So...

SPEERS:

But isn't it a bit rich to blame Labor for rates going up when they were in government but not accepting blame when they go up under you?

TREASURER:

Well David, I think there is a bit of a difference between an 8½ per cent interest rate and a 17 per cent interest rate.

SPEERS:

But people owe a lot more now, they feel a small rise a lot more.

TREASURER:

Well people have borrowed more now because you can afford to borrow more when interest rates are at 8 ½ per cent than you can when they are at 17 per cent...

SPEERS:

And you have to borrow a lot more to buy a house.

TREASURER:

No they borrowed more and of course they have been able to upgrade housing and I think you would find that the standard of house that Australians are living in today is a bit better than it was in the 1980s. You shouldn't be surprised...

SPEERS:

(inaudible) more expensive.

TREASURER:

...if the standard of house would be better than it was in the 1980s and you shouldn't be surprised if interest rates are half of what they were under the Labor Party. And 8½ per cent, let's be frank, is half of 17 per cent. You shouldn't be surprised that people borrow more because if interest rates are lower then people do borrow more. It is one of the reasons why you have lower interest rates.

SPEERS:

The Coalition has set a target of 3 per cent unemployment rate as the most important goal of a re-elected Coalition Government. If unemployment does go that low though, won't wages and inflation go up?

TREASURER:

Well it is much more difficult to manage inflation with low unemployment. You are absolutely right. And that is the point I make. To think that interest rates today are lower than they were in the worst recession in 60 years, when unemployment was in double figures, shows you how far things have come. But you are quite right. If you are going to manage unemployment down further then you have got to have a strategy in place which will deal with inflation to make sure that you can manage low unemployment or full employment without putting pressure on interest rates. That is why our programme is so important, our programme of industrial relations reform, our programme of Welfare to Work, our programme of technical colleges. Now in all of the debate of this week, Kevin Rudd has been unable to answer this question: what would he do to manage inflation? Because, apart from his industrial relations, he has ‘me too-ed' the Government on everything. But the one area where he won't ‘me too' the Government is actually the critical area for managing inflation. If you go backwards on industrial relations, if you return to awards and union power on building sites and union power in the mines, what you are going to get is you are going to get wage settlements coming out of profitable industries, going across the board, workplace to workplace, going from industry to industry, bumping up inflation and pushing out interest rates. And I think this campaign has actually reached a critical turning point. The platitudes and the clichés of Kevin Rudd, which have been given to him by Hawker Britton, weren't written for an economy which requires the management of inflation and interest rates. And that is why he sounds so naked. He is naked because he hasn't thought about these issues and he doesn't have an answer to them.

SPEERS:

But Treasurer, instead of speculating what might happen under Labor's policy, let's look at what has happened under your policy. The unemployment has gone lower but you have not been able to prevent inflation going higher.

TREASURER:

Well unemployment is now close to 4 per cent and inflation is between 2 and 3 per cent.

SPEERS:

And the Reserve Bank is saying it will go above 3 per cent.

TREASURER:

Well David, let's compare this. Why don't we compare it with the last time unemployment was 4 per cent. The last time unemployment in Australia was 4 per cent as we know was in 1974.

SPEERS:

If we look at what has happened under your Government...

TREASURER:

No, no, no. You have got to get a perspective on this. The last time unemployment was at these levels we know, was 1974, 33 years ago. What was inflation in 1974, David?

SPEERS:

You tell me, Treasurer.

TREASURER:

16½ per cent. The last time we had 4 per cent unemployment inflation was 16½ per cent.

SPEERS:

It is a long time ago but looking at what has happened this year...

TREASURER:

And now we have got unemployment back there at 4 per cent and what is inflation today? Is it 16 ½ per cent? No. It is 2 to 3 per cent.

SPEERS:

Yes but it is heading higher, so again, if you do want as you primary goal to get unemployment down to 3 per cent, based on your record...

TREASURER:

David, I don't think it is heading back to 16½ per cent. I don't think anybody would be saying that.

SPEERS:

But it has edged higher and again, if the primary goal is to get unemployment to 3 per cent, do we have to brace for higher inflation and higher interest rates?

TREASURER:

No, if you want to get unemployment lower - and it will take a lot more management in relation to inflation and interest rates - then absolutely critical is industrial relations. You couldn't have even got it to where it is now on an 8½ per cent mortgage interest rate if we hadn't have had those changes. And if you go backwards, if the Labor Party gets elected, if we go backwards, two things will follow. One is inflation will take off and interest rates will take off, the second thing that will follow is unemployment will go up. It always happened in the past and if you have an inexperienced manager with the wrong policy letting the unions back in to control the workplaces, you will end up where we were in the past.

SPEERS:

The US Federal Reserve Chief, Ben Bernanke, has warned that economic growth will slow considerably in the United States in coming months. Is this the financial tsunami that you have been warning about?

TREASURER:

Well I have been warning about the fallout from the US sub-prime. It is not over. You have seen in the last couple of weeks the head of Merrill Lynch lose his job, you have seen the head of Citigroup, the worlds largest financial institution lose his job. Citigroup I think is provisioning for $8 to $11 billion of losses and out there in the system, somewhere lurking, are tens of billions of losses which have not yet been identified. They will turn up in various financial institutions and when they do, those institutions will be in trouble. It won't just be the chief executives that will be losing their jobs, what will happen is that people will be very wary about lending money to these institutions, credit will become harder and the price of credit will go up. You saw the US sub-prime cause a run on a bank in the UK - Northern Rock - you will see the US sub-prime crisis create other problems around the world. You have seen it in BNP, you have seen it in Citigroup, in Merrill Lynch, you will see it in other institutions.

SPEERS:

Treasurer, your colleague Joe Hockey has committed to resign if WorkChoices is made any tougher under a re-elected government. Given Labor is running pretty hard against you on this saying you are the one who wants to strengthen WorkChoices, will you make the same offer to resign if WorkChoices is strengthened?

TREASURER:

Well it won't happen because as I have said, the balance which the Government has now struck with the Fairness Test is the right balance. It is...

SPEERS:

But you won't stake your job on that? You won't stake your job on that commitment?

TREASURER:

No, no, I am telling you the policy won't change.

SPEERS:

But why won't you stake your job on that like Joe Hockey has?

TREASURER:

Because the policy won't change. The balance is right, the Fairness Test is right. It has allowed us to create jobs. And I think since WorkChoices came in, 430,000 new jobs. Let me give you another statistic, David. Just think about this for a moment. In the last year, in the last year there were 280,000 new jobs created in Australia. What is that? About 20,000 a month. Almost 1,000 a day, 280,000. 98 per cent, 98 per cent of them were full-time jobs. Now, coming out of the recession in the early ‘90s, most of the jobs that were being created were part-time and it was always said if you changed industrial relations you would get the casualisation of the workforce or part-time work. 98 per cent of those jobs were full-time and if you think to yourself there are 365 days in a year, 280,000 jobs, you are almost up at 1,000 jobs a day.

SPEERS:

But if there is no fear of the laws being toughened and if it is good enough for Joe Hockey to make that commitment, why the hesitation from you to put your job...

TREASURER:

There is no hesitation because the policy won't change.

SPEERS:

So you will, you will resign if...

TREASURER:

There is no hesitation at all.

SPEERS:

...the laws are strengthened?

TREASURER:

No I would go better than that. The laws won't change.

SPEERS:

Okay. But Labor has been making a lot of your former membership of the HR Nicholls Society. I note that the Secretary of the Society, the Liberal Candidate in Makin, Bob Day, has said that apprentices should earn 10 to 15 per cent of what a tradesperson's wage is. Do you agree with that sort of suggestion?

TREASURER:

No, no under our system of apprenticeships, of course, I think we've trained, I think it's 540,000 in the last five years...

SPEERS:

So you disagree with the HR Nicholls Society?

TREASURER:

No, I agree with the Federal Government. I'm the Treasurer in the Federal Government. The policy I support is the Federal Government's policy, David. Why would you think otherwise? I have been implementing the Federal Government's policy. We've got more people in apprenticeships than ever before. We introduced a top-up wage for people in skill shortage areas in the recent Budget. We have now also introduced for those in skill shortage areas $500 to go towards their training. And for older people who want to get into apprenticeships, we've uncapped the vouchers. I can honestly say this to you, this Government has invested more into apprenticeship training and apprenticeships than any of its predecessors and we have more apprentices in training by a factor of, I think, triple what the Labor Party had in 1996. Now that's not to say we don't have to continue to work at it. But the record of this Government in relation to apprenticeships and skills pales anything that the Labor Party ever did.

SPEERS:

Treasurer, Mark Latham has weighed into the campaign. He has written a piece in the Financial Review calling this the Seinfeld campaign, that it is a show about nothing. Is he right in saying there's not really going to be much of a change whoever wins on November 24?

TREASURER:

I think he's right in saying that Kevin Rudd is pretending that he's following Liberal Party policy. Kevin Rudd's pretending that he's an economic conservative. I think that's right but I think it's a con because as Mark Latham said, he said, Labor is running around telling all its people behind the scenes that if they get elected there will be a radical agenda. That's what they're telling their booth workers. That's what they're telling the trade union movement. Of course, that's also what Peter Garrett said, you recall: ‘when we get in, we'll change it all'. Now David I've done a search on this. MrRudd never called himself an economic conservative until this year when his PR firm, Hawker Britton, said, call yourself an economic conservative. He used to call himself a Christian Socialist. This year he started calling himself an economic conservative as did others of his colleagues. But let me tell you, economic conservatives don't go and join the Labor Party. If you were a true economic conservative, you wouldn't say to yourself: ‘how can I follow my economic conservative values? Oh, I know what I'll do - I'll join the Labor Party'. If you were an economic conservative, and believed in sound finance and economic management, you'd be a member of the Liberal Party. This is a PR strategy which has been put in place by Hawker Britton...

SPEERS:

All right.

TREASURER:

And they are telling the Labor Party, just as they are telling the trade union movements, just let us pretend, just let us get to the election line and get elected and then we'll change it all.

SPEERS:

Treasurer...

TREASURER:

I thought the most revealing part was when Mark Latham says ‘this is what we're telling all of our supporters'.

SPEERS:

Well, I am interested that you're citing Mark Latham now as a credible source. Let me ask you, just finally, because we're almost out of time. Have you spoken to your brother since his endorsement last week of Labor?

TREASURER:

Well, I think he wrote a piece to say he wasn't endorsing Labor. And he's entitled to if he wants to. Everybody is entitled to endorse who they like.

SPEERS:

Have you had a chat to him yourself?

TREASURER:

But he wrote a piece in the paper to say that that wasn't the case, so I welcome that piece.

SPEERS:

All right, and have you spoken to him about it?

TREASURER:

No, no, no, he's got his own views. And I noted what he said in the paper and I read it with great interest.

SPEERS:

Okay, Treasurer Peter Costello, thanks very much for your time.

TREASURER:

Thank you.