TREASURER:
This morning the Reserve Bank announced the decision to increase interest rates by 25 basis points, 0.25 per cent, raising official interest rates to 5 -. As the Bank made clear in its statement, interest rates have been rising around the world, predominately as a result of a stronger world economy. In Australia interest rates have now risen by a full 1 per cent, as they have in Europe, in the UK, in New Zealand, and in the US, although Australia’s official rates are still lower than they are in the United Kingdom and in the United States. As the world recovers from the Asian financial crisis and world growth is stronger, Central Banks around the world have been tightening monetary policy. Australia has been no different in that respect. But the strengthening world economy will bring its advantages for Australia. It means that our exports will find better prices and better volumes. I expect that that means that growth in Australia will move from consumption increasingly into exports. I expect strong growth to continue in Australia, and that to have good news on the jobs and employment front.
JOURNALIST:
Are you concerned Treasurer, about the level of the Australian dollar?
TREASURER:
I have never commented on the particular level of the Australian dollar. I note the statement that the Bank made, and the points that they made in their press statement today, but from my point of view I don’t target a particular level in the dollar, and I certainly don’t talk about future movements in relation to it.
JOURNALIST:
The Bank says though, that the level of the Australian dollar is now an important consideration in setting monetary policy because of the inflationary effect that the falling dollar could have. Doesn’t that indicate though, that we actually now, starting to target the dollar with monetary policy?
TREASURER:
I don’t think so. I think that the point that the Bank was making was that, and this has historically been the case, that as your currency moves down, your import prices move up, and that’s generally fed into inflation in the past. It wasn’t the experience in Australia in 1997 and 1998, because of the Asian financial crisis. And I think the point that the Bank’s making is that it’s a different world economy now. 1997/1998 was a time when, because of the Asian economic collapse, the world economy was looking weak. The world economy is now looking strong. I think that’s the point the Bank was trying to make in its statement.
JOURNALIST:
The Bank is also making the point that it was reasonably odd that the dollar should be so low given the strength of the world economy, given rising commodity prices. Are you a little perplexed at why the dollar hasn’t risen like it probably has in the past, given those sort of circumstances?
TREASURER:
Look, there are a lot of factors that influence the level of a currency. They can be prospects in the world economy, they can be commodity prices. There can be a whole host of reasons which influence it, and I’ve always been very careful to make sure that it’s not influenced by the comments of Treasurers. And I don’t really propose to comment on its future direction.
JOURNALIST:
Does the GST have anything to do with the rate rise?
TREASURER:
No, the interest rate rise in Australia today, as the Reserve Bank, which made the decision made clear, was predominately because of stronger world economic growth. And interest rates have now gone up around the world over the last couple of months by a full 1 per cent or more. It’s been the case in Europe, it’s been the case in the United Kingdom, it’s been the case in New Zealand, it’s been the case in the United States, where they actually outstripped Australia. And because the world economy is strengthening, Central Banks around the world are increasing their interest rates, and the Australian Central Bank is no different.
JOURNALIST:
Mr Costello, what would you say to a home lender or a bank that was considering passing on more than of a percent, and you know, will the Government . . .
TREASURER:
I don’t think there’s any grounds at all for banks or other home lenders to pass on more than 0.25 per cent on their mortgage products.
JOURNALIST:
If they do is there scope for the Government . . .
TREASURER:
Well, if they do, I’ll be looking at it very carefully. The fact of the matter is, as interest rates came down, it was the Government’s belief that the cuts in official interest rates should be passed on in full. And in fact, as you know, were more than passed on because increased competition in the market-place, shaved margins. As official rates move up by 0.25 per cent, there are no grounds for any bank or other home lender to move their rates up by more than 0.25 per cent, and I’ll be watching them very, very carefully, I can assure you of that. In fact, I think there’s probably good opportunities for some people to beat the market, in a market like this.
JOURNALIST:
Should the Government reconsider its position on mandatory sentencing if Denis Burke refuses to budge?
TREASURER:
I’ll come to that in a moment, I’ll just make one more point on interest rates. When this Government came to office, the standard variable mortgage interest rate was 10 per cent. Now it’s 7.3, and with a 0.25 percentage interest rate rise, you’d expect it to be 7.5, 7.55, something of that dimension. That represents on the levels of March 1996, when the Government was elected, a saving on the standard variable mortgage of $250 a month, $3,000 a year. So compared to where interest rates were when the Government was elected, a standard variable home mortgage interest rate, your average borrower is saving $3,000 a year. As I said earlier, the cut in interest rates was caused by cuts in official rates and shavings of margins. Now, as official rates go back up, there is no grounds whatsoever for banks or any other financial institution to try and claw back some of those cut margins.
JOURNALIST:
(inaudible) . . .
TREASURER:
Sorry, I did promise to answer this question.
JOURNALIST:
Should the Government reconsider its position on mandatory sentencing if Denis Burke refuses to budge?
TREASURER:
Well, the Government’s position is that we oppose mandatory sentencing for juveniles. We think for people who are under 18, mandatory sentencing is wrong, the Magistrates and Judges should have a discretion to consider the facts, and if they haven’t got that discretion, then it’s not right, it’s not fair. And we are going to put to Mr Burke the fact that those laws for people under the age of 18 are wrong, and we are going to try and persuade him to either change the laws or to put in place other alternatives for young people. We’re not countenancing what’s going to happen if that isn’t the case, we’re going flat out to make sure that is the case. That’s what we’re doing . . .
JOURNALIST:
Do his statements so far give you any cause for concern that he may simply refuse to budge?
TREASURER:
Oh look, I view his statements so far as positioning, I don’t regard them as final. And I’ve dealt with a lot of State Premiers over the years, and I know that their opening statements generally are positioning statements. But I’ve never accepted the opening statement as the final word. And I wouldn’t accept the opening statement as the final word. He’s going to meet Mr Howard, and we are going to put our case fully and with vigour.
JOURNALIST:
How then can the Budget cope with more spending for diversionary programmes if . . .
TREASURER:
Look . . .
JOURNALIST:
. . . that’s what’s required?
TREASURER:
. . . look, diversionary programmes for a small number of people are not Budget breakers. Are not Budget breakers. Now, you’re not talking about large sums of money. There are not large numbers of people that come within those programmes. And that, by the way, is not an indication that the Commonwealth regards it as its obligation to pick it up. I’m sure that the Northern Territory has resources. But this is not a Budget breaker, and it’s not going to fall over for small sums of money, I can assure you of that.
JOURNALIST:
Treasurer, do you believe the Commonwealth should override the laws as a last resort?
TREASURER:
Look, we’ve got a process. We’re opposed to mandatory sentencing for people under 18. We think that the circumstances of every case should be taken into account to do proper justice, and we are going to try and convince the Northern Territory to that outcome. Now, let’s see if we can do it. We stand ready to help with other alternatives, such as diversionary programmes, so that young people can be put into diversionary programmes, can be helped, can be rehabilitated, can be trained, so that it’s not automatic gaol, and we’ll see how we go.
JOURNALIST:
Mr Costello, public schools have expressed more concern about unfair treatment under the GST, many of their activities aren’t exempt, whereas private school fees are. Is there anything that we can do about this?
TREASURER:
Well, that’s not the case. In relation to education, delivered by whoever, it’s GST-free. Which is a better system than the current system, which means you get back every dollar of embedded tax and you don’t charge any tax on rendering the service. So for Government schools, and this has been accepted by all of the people that are involved, the price of education, delivering education actually falls for Government schools and for private schools. And in relation to fund raising events, any fundraising event where parents and citizens councils run those fundraising events, and they’re under $100,000, or if they’re over $100,000 they can even get an exemption, but under $100,000 they’re not caught up in the system. So, this is an improvement on the current system. You’ve got to measure the Government’s tax reform against the current system. And under the Government’s reforms for Government schools and for private schools, the cost of delivering education falls, actually falls on what it currently is. Now, this is an enormous benefit for both the Government schools and the private schools.
JOURNALIST:
Treasurer, do you think there’s any need for greater transparency . . .
TREASURER:
Last question.
JOURNALIST:
. . . with the Reserve Bank, such as press conferences after rate rises, that sort of thing?
TREASURER:
Look, when our Government came to office, I entered into an agreement with the Governor of the Bank, to put the Bank on an independent footing. It’s an actual agreement between me and the Governor. We came to an agreement on the objectives. We also came to an agreement on the Governor appearing before Parliamentary committees twice a year. And the Government, the Reserve Bank putting out its report twice a year. We heightened transparency to a level which had never occurred before. And these reforms, when I entered into them in 1996, were then considered so path breaking that the Labor Party was going to sue me. Paul Keating attacked them, and Gareth Evans said he was going to sue me to undo that agreement. That was in 1996. In the year 2000, if you ever asked them what their policy on monetary policy is now, they say, oh, it’s the Treasurers – independent Central Bank with inflation targeting, with appearances between parliamentary committees. Again, look, we do the hard work. We put these reforms in place, they oppose them until such time as they adopt them. It’s like the Budget. They opposed every single measure to put the Budget into surplus. Every single one of them. Went out and tried to create fear, uncertainty, and then when the Budget was in surplus, you know what their policy became? Oh, we’re in favour of surplus Budgets.
JOURNALIST:
So you . . .
TREASURER:
It’s like this on GST . . .
JOURNALIST:
So you can . . .
TREASURER:
. . . fear, uncertainty, try and do everything they can to undermine tax reform. You know what they’re going to do on 1 July? They’re going to adopt GST. Well aren’t we surprised by all of that . . .
JOURNALIST:
(inaudible) . . .
TREASURER:
. . . now, the . . .
JOURNALIST:
. . . (inaudible) transparency (inaudible).
TREASURER:
. . . the transparency that is in place is more transparency then has ever been put in place by any other Government, which is transparency which is equal to anything anywhere else in the world . . .
JOURNALIST:
So it’s world best practice?
TREASURER:
Well, I’d say if it’s not the world’s best practice, I’d say it’s world’s equal best practice. It’s equal to anything there is in the world.
JOURNALIST:
You’ve seen the Bank of England reforms?
TREASURER:
The Bank of England . . .
JOURNALIST:
(inaudible) . . .
TREASURER:
The Bank of England wasn’t even . . .
JOURNALIST:
. . . (inaudible) put them on the internet?
TREASURER:
Hang on, the Bank of England wasn’t even an independent Central Bank until quite recently. And . . .
JOURNALIST:
But it is now.
TREASURER:
. . . and in relation, well, again, followed Australia. Followed Australia, have a look at its statute. Have you had a look at the statute . . .
JOURNALIST:
I have.
TREASURER:
. . . of the Bank of England?
JOURNALIST:
Yes.
TREASURER:
Yes, have a look at its statute. Following Australia in relation to the Board. Now, in relation to this idea of minutes, let me make the point about this idea of minutes, which I think you release, how many months after the meeting?
JOURNALIST:
Two weeks.
TREASURER:
Yes. Wonderful guide, isn’t it? Two weeks after the event, wonderful guide. You know what happens, and I’ve discussed this with people in the Bank of England. Knowing that the minutes are going to be released, everybody makes their comments according to what they think will protect their position in the minutes. Like anything else, you think you have a full and free disclosure in a situation where you know the minutes are going to be discussed. Have you ever seen a minute come out of the Bank of England where such and such a Board Member said that such and such a Board Member was completely wrong, had no idea about economic policy and ought to be sacked. No. Because knowing that the minutes are being released after the event, the only interest could be, that kind of material, as a consequence there’s a certain kind of reserve entered into in the discussion. You’re much better to have full and frank discussions, and not to be constrained by that. It’s like the Australian Cabinet. Do you think you’d have more frank discussions in the Australian Cabinet if we released the minutes two weeks after the event? Of course not . . .
JOURNALIST:
(inaudible)
TREASURER:
. . . we’d never . . .
JOURNALIST:
It could be interesting.
TREASURER:
I don’t think, I don’t think you would actually know more about what was going on. I think the minutes that you saw after the event would be minutes which would record what people wanted you to know. I think you’d all agree on that, but . . .
JOURNALIST:
Isn’t the Australian public . . .
TREASURER:
No, I’ll try you out on this. I mean, why doesn’t the Fairfax Board release the minutes of its Board meetings after each Board . . .
JOURNALIST:
Its shareholders aren’t . . .
TREASURER:
I’d be very interested to read the minutes of the Fairfax Board . . .
JOURNALIST:
It’s a private sector company.
TREASURER:
. . . and I’ll recommend that to them, and the ABC Board for that matter. I’ll recommend that to them . . .
JOURNALIST:
Good.
TREASURER:
. . . after the event. Thank you.