TREASURER:
Well the Statement on Monetary Policy which has been issued by the Reserve Bank today confirms the picture of the Australian economy which I noted with the release of the CPI figures quite recently, that is, that the Australian economy continues to grow with low inflation, perhaps lower inflation than was predicted.
And importantly that we are now beginning to see an adjustment in relation to Australia’s housing market, that the housing market ran very strongly for some time. It appears as if we are now getting an adjustment in relation both to prices, credit and also in relation to building approvals. And it is a point I have been making now for two years that you wouldn’t expect the housing market to continue to run up strongly for an indefinite period of time. We welcome the fact that there appears to be a plateauing now in the Australian housing market.
It is important that we don’t underestimate the challenges to our economy and the biggest challenge at the moment is the world oil price which is still abnormally high. Petrol prices which are still very steep at the bowser and the effect that that is having on family budgets. And it may well be that the high oil price and the very, very punitive petrol price for motorists has dampened consumption over some recent months. It is in nobody’s interests to have these high oil prices and we look forward to a readjustment in the world oil market and some of the relief coming off motorists at the bowser in the months which lie ahead.
But it is important for the Australian economy that we face up to these challenges, that we take them in our stride, that the economic reform programme goes ahead and that we ensure that we can have the best outlook as possible for a continuingly growing economy on a low inflation base.
JOURNALIST:
Treasurer the Reserve Bank says it expects interest rates to rise at some stage during the current business cycle. Would you expect that we will keep, things will keep on keeping on as they are for at least until the middle of next year?
TREASURER:
Well the statement that has been made today was the same as was made three months ago, that you could get a movement in monetary policy during the term of the current expansion. Given the fact that the current expansion has now been going nearly 10 years, I would have thought it is a statement of the obvious that you could get a change in monetary policy at any time during the current expansion which is now 10 years old. But the important point that I would reaffirm is the point I made when the CPI was released. In fact the CPI was lower than expected, that notwithstanding the pressures that we are getting from oil, inflation is well contained in Australia and well within our target band. And monetary policy in Australia is directed towards a target of 2 to 3 per cent over the course of the cycle.
JOURNALIST:
The ACTU’s announced today a safety net case of $27, almost $27 a week. What kind of impact do you see that having?
TREASURER:
Well, everybody likes a wage rise don’t they. And when we have a growing economy based on productivity we can afford higher wages. That is what has happened in Australia over the last eight years. But you have got to remember that for some people when wages are put up, it makes it harder for them - these are the lowest paid - to keep themselves in jobs. And it is no consolation to those people - if wages are to rise in such a way that their jobs become threatened - it is no consolation to say, oh well, if you can’t earn a certain amount you should be locked out of the labour market. It is very important for the Industrial Relations Commission to take into account that we should do everything we can to keep people in the labour market, particularly low wage earners, to keep them in work, to increase participation and that will be a central part of the case that the Government puts to this hearing. Sure, as the economy grows we ought to look for wage increases but we shouldn’t leave behind people who might be locked out if those wage increases mean that their employment becomes threatened.
JOURNALIST:
Treasurer do you support any changes to abortion laws in Australia?
TREASURER:
Well the abortion laws are set by State Governments. And those who believe that the law on abortion should be changed should be agitating at the State level in relation to State Governments. That is the point I would make.
JOURNALIST:
Would you like to see your colleagues (inaudible)?
TREASURER:
Well no, this is a matter which is set by State Parliaments, either legislatively or through the common law. But if you wanted to see the common law changed it would have to be a State Bill.
JOURNALIST:
Would you make a (inaudible)?
TREASURER:
And it is a matter for the State Governments to consider. And if there are people that believe that the law as it is currently weighted is wrong and if they do want legislative change then it is important that they take that up with the State Governments and the State Parliaments. It is not a matter which is determined by the Federal Parliament.
JOURNALIST:
Do you think your Federal colleagues should tone down on abortion?
TREASURER:
Look, people are entitled to have their own views. And they are entitled to express them. This is a very difficult area for all of those that are concerned. And we shouldn’t be, we, you know, people who have strong views shouldn’t feel as if they can’t express them but I would say they ought to be expressed within the framework of understanding and concern and care for what is right for mothers and children and society as a whole. But I will make this point that it is the State Governments that legislate in this area. So if you are agitating for change it would have to be done in the State Parliaments of Australia. That is where the argument would take place.
JOURNALIST:
Mr Costello why is Australia alone apart from Switzerland in not allowing the proceedings of its Central Bank Board to be published?
TREASURER:
We have a Central Bank Board which is quite different to any other country in the world. It has on it lay members. And what is more, lay members who have understanding of different areas of the economy. They might be people who have a good understanding of the mining industry or the retail industry or the farming industry. You don’t have that on the US Federal Reserve, you don’t have that on the Bank of England. Those countries have moved to what I might call, complete technical boards. Now the downside of that is that they don’t have the feedback, the direct feedback, from industry. And I will warrant you this, anyone who wants to be critical of the Reserve Bank of Australia, says it should operate differently or is not as good as another Central Bank, stack its record up against those other Central Banks and see whose record is the best over the last eight years.
JOURNALIST:
So it is not up for review?
TREASURER:
Now let me say, if you want to go back far enough - as an economic journalist you would know that - particularly in the late 1980s the Reserve Bank I believe didn’t have a strong record. So I am certainly not defending the record of the Reserve Bank back to the late 80s and early 90s but at least since this Government has been in office, since 1996 I will stack its record up against other Central Banks around the world.
JOURNALIST:
And that policy is not up for review?
TREASURER:
Well it is set by Statute. It is in the Statute from memory since about 1959. We have always had so called “lay” members on our Bank Board. Now if you are going to urge that Australia adopt the US system or the English system you would have to abolish that Board. Now there is an argument for that, you say, oh we will have all full time professional economists on these Boards. There is an argument for that but I think they can get too narrow. You lose the anecdotal evidence if you like, the feedback from the business community. Now you might want to trade that off. But over the last eight years I think our arrangements have been better arrangements.
JOURNALIST:
Just on the wages again…
TREASURER:
Last question.
JOURNALIST:
…given that people are feeling the pain at the petrol pump what level of wage rise do you think would be appropriate without costing jobs?
TREASURER:
The important thing is to have wage levels based on productivity. If you have a growing economy with businesses profitable and increasing productivity they can afford to pay wage increases. That is what has been happening in Australia over the last eight years. But if you increase wages for the lower paid where those businesses don’t have that profitability you can actually put lower paid people out of work. And that is not in their interests and it is not in society’s interests. Thanks very much.