TREASURER:
Well, in a round of discussions with US economic leaders and international economic leaders, there’s no doubt that the greatest threat to the world economy at the moment is oil and petrol prices. There are two components of petrol prices; the first is the price of crude oil, the second is the refining capacity – the capacity to make petrol from it. The good news is after the second hurricane, Hurricane Rita, there doesn’t appear to have been any more damage to refining capacity, and that means that the extraordinary spike we saw in the wake of the first hurricane should gradually pass through the system. Unfortunately, the world oil price looks as if it’s going to be high for some time, and that means that Australian consumers are going to be paying higher prices at the bowser than they were last year and for quite some time – although, not at the levels we saw with the spike after the hurricane.
Let me make it clear that petrol prices, high petrol prices, are in no-one’s interest. They’re not in the interest of the consumer, they’re not in the interest of business, they’re not in the interest of government, they’re not in the interest of the world economy. But until such time as refining capacity comes back in full and the world oil production increases we, unfortunately, will have to live with higher prices than we’d like. And it may well focus attention, which would be a good thing, on other alternatives such as biofuels.
JOURNALIST:
US President George Bush this week has urged Americans to drive less and do other things to conserve fuel. Is that something you’d be encouraging Australians to do as well?
TREASURER:
We saw in the wake of the higher petrol prices that sales of four-wheel drives, large four-wheel drives, in Australia came off. That is a totally predictable response and not a bad thing. That if prices are going to be high for some time, it’s very costly to drive big four-wheel drives and more efficient use of fuels on more efficient cars is one way of responding, and a good way of responding, to that price surge.
JOURNALIST:
What about driving less though?
TREASURER:
Well, look, for most Australian commuters I think that they don’t have a choice. They’re commuting to and from work. They don’t have the choice of not going to work. They may have the choice of going with friends or they may have the opportunity to have a more efficient car. And if more efficient cars and more efficient fuels are available, I think that’s certainly worth looking for.
JOURNALIST:
Why not cut taxes, Treasurer, on petrol if it’s so important?
TREASURER:
Well, as you’ve seen the petrol price here in America is at all time highs, as it is in Europe and Asia and Australia. Petrol price is not an effective tax. It’s a worldwide event, and it’s a worldwide event because oil is a worldwide commodity and refining capacity affects the price on a global scale. And an Australian tax change is not going to do anything about world oil prices.
JOURNALIST:
So what impact will the high price of oil have on the Australian economy? What do you project for the next 12 months?
TREASURER:
It will have two effects. It will moderate growth to a small degree, I don’t want to overstate it, but in a small degree it will moderate things. Secondly, it will have an effect on the Consumer Price Index. It will mean that the Consumer Price Index would be higher than otherwise. When we’re looking at interest rate policy, we look through the direct effects of petrol on the Consumer Price Index, but if it were to get into the transport system and back into the economy, then it could move underlying inflation. So we’ll have to be very careful that it doesn’t do that.
JOURNALIST:
Is there a rough measure between petrol prices increasing and an equivalent interest rate increase, for instance?
TREASURER:
Well, if people spend more on petrol, it’s less money they’ve got to spend on other things. And generally speaking, when petrol prices go up, consumption in the economy is more subdued. That’s why I say high petrol prices are not good for the Australian economy, they’re not good for consumers, and they’re not good for business, and they’re not good for the Government.
JOURNALIST:
So high petrol prices reduce the need for rises in official interest rates if they’re a de facto rate rise?
TREASURER:
Well, I’m not putting it like that. What I’m saying is that petrol prices do tend to dampen consumption and I don’t regard that as a good thing. That is a bad thing for consumers, for business, for the Government and for the economy.
JOURNALIST:
So are you ruling out any action on the petrol excise?
TREASURER:
Petrol excise in Australia is 38 cents. We cut it in 2001 and we abolished indexation. It has not increased since 2001 and it will not increase. It’s 38 cents when the price is a dollar. It’s 38 cents when the price is $1.30. It’s not the cause of increasing petrol prices and changes in relation to taxation are not going to deal with the increases that you’ve seen.
JOURNALIST:
So you’ll rule out any alteration in excise?
TREASURER:
I’m saying that changes in excise will not counteract what is really causing high petrol prices, which is global oil prices and refining capacity.
JOURNALIST:
The World Economic Forum has put Australia in the top 10 of the world’s most competitive economies in a report released overnight. What’s your response to that?
TREASURER:
Well, I welcome the fact that the World Economic Forum has moved Australia into the top 10 competitive economies of the world. Australia performs very well in relation to employment, inflation, the budget position, the transparency of its institutions – very well indeed. There was only one indicator that we performed badly on, and that was the real exchange rate. We were rated 113th out of 117. But, as you know, the Government doesn’t set the exchange rate, that’s set by markets. So, there is nothing that we will be doing about that. We note it. We note that the high Australian Dollar has made things tougher for our exporters, but it’s not something that Government controls. Leaving that aside, the fact that Australia is now in the top 10 competitive economies of the world says that we’re open for business, and we’re open for jobs, and that’s a good thing for Australians.
JOURNALISTS:
The report also expresses concern about what it says are the imbalances caused by the big trade and budget deficits here in the US. Is that something that’s come up in your conversations this week?
TREASURER:
Oh, sure. The budget deficits and trade deficits of the United States are of concern in relation to the world economy. And the IMF, the World Bank and, I think, even many US policy makers would say that they need to be carefully watched. If you got to a situation where those imbalances led, for example, to a big realignment of exchange rates or currencies around the world, that could affect the globe. It is something that Australia would have to live with, and we would like to see an orderly adjustment rather than some big and unexpected sudden adjustment, which could come if there was a change of sentiment in relation to those imbalances.
JOURNALIST:
Who else have you seen, Treasurer, while you’ve been in Washington?
TREASURER:
Last weekend was the World Bank and IMF meetings, and I took the opportunity to see the President of the World Bank, the Chairman of the Federal Reserve, Doctor Greenspan, to talk about economic developments. I’ve met the Deputy Secretary of State, and I’ve been down to the Director of National Intelligence and seen General Hayden who’s the 2IC down there, and this afternoon I’ll be having further intelligence briefings and meeting with the Vice President.
JOURNALIST:
Have you met with the Vice President yet?
TREASURER:
No, this afternoon.
JOURNALIST:
Are you meeting him at his house in the observatory?
TREASURER:
No, the White House.