JOURNALIST:
What toll do you think all the turbulence on stock markets might take on confidence amongst consumers and on growth in general?
TREASURER:
I think the down-turn, particularly in the United States market, is very severe. It's been a very large fall over a number of days. Now, you have got to put that in context, that is coming off rises over a number of years. But where it would start to affect the real economy, is if Americans who have lost money on the stock markets begin to stop spending or lose confidence, or if businesses cease hiring, if it works its way out into the real economy, and that is the risk. This has been quite an extended period of stock market volatility and weakness and if that works its way into the real economy it's going to affect US prospects. Now, the good news is that Australia has been a stronger economy than the United States. Our stock markets have performed better than the United States. But we are not immune from international developments and international developments affect our stock markets and they also have an effect on our economy.
JOURNALIST:
Is this shaping, in your view, as a bigger potential shock than the Asian financial meltdown?
TREASURER:
I don't think so. I think the shocks that the Australian economy has weathered over the last five years have been, firstly, the Asian financial meltdown, which was undoubtedly the worst, we came through that. Secondly, the American recession of 2000, when we came through that, and became the strongest growing economy in the developed world. This is a third shock and I would not put it of those dimensions yet, but, if the volatility in American stock markets, if the loss of capital from individual investors works out to consumer spending and business intentions, that is, if it flows out of financial markets and back into the real economy, that would be pretty significant.
JOURNALIST:
Mr Costello, the US President and the Federal Reserve Chief have both tried to put a ceiling under these falls and it's really had no effect. What is needed to restore some confidence?
TREASURER:
Well, I think what is going to be needed in the United States, is, first of all people have got to be reassured that companies are now reporting their profits accurately. That the days of dressing up balance sheets are over. That all of those companies which did dress up their balance sheets bring to account proper profits. There has also got to be an understanding that accounting standards will be rigorously enforced and that this will be disclosed to the market. What you are getting now is you are getting an overhang. People think, well, some companies have dressed up their balance sheets therefore we can't be sure of others. And it is the overhang in relation to companies that are being affected by the bad conduct of some. Now, that is what the market is looking for, that kind of reassurance. In Australia we have made great efforts over the last decade to clean up corporate practices. We insist on continuous disclosure which the Americans don't do. Our accounting standards have the force of law. Now, I am not going to say to you that there haven't been bad incidents in Australia, obviously there have. One of them is the subject of a Royal Commission at the moment, HIH. But we have got that in a Royal Commission, our Corporate Regulator has already taken enforcement proceedings, people have been already been brought before the courts. And I think there is a very strong message out there to corporate Australia that we don't want anybody to dress up their balance sheet, that it is important that the public knows the situation of these companies because it is the public's savings.
JOURNALIST:
Should this market volatility be a factor in the Reserve Bank's Board's deliberations next month?
TREASURER:
Look, when you are making decisions about monetary policy what guides you is the real economy. That is, the state of the real economy, the state of inflation, what is happening in relation to the real indicators. You do not sit down there and work off stock markets. But stock markets are relevant to this extent, to the extent that they affect the real economy. That is the importance of the developments that are going on now, to the extent that they affect the real economy and they affect the real economy through peoples' decisions based on where they see their savings going.
JOURNALIST:
Are growth projections in the May Budget now looking shakier?
TREASURER:
Well, in the May Budget, which are the best forecasts of Australian growth, we forecast Australian growth to continue the strongest in the developed world, stronger than the United States. And what you have seen is considerable US weakening. But we were always forecast to be a stronger growing economy than the United States. And I think the episode of the last couple of weeks probably has confirmed that.
Thank you.