JOURNALIST:
Peter Costello joins me in the studio. Good morning.
TREASURER:
Good morning Ali, good to be with you.
JOURNALIST:
Are you following your water restrictions?
TREASURER:
I am doing my best.
JOURNALIST:
I can’t imagine you are out very often watering the garden anyway.
TREASURER:
I was out last night watering the garden.
JOURNALIST:
Oh right, you won’t be able to do that, actually Sunday, depending on your house number you might be able to.
TREASURER:
Yes, yes, that is the hard part isn’t it, figuring out the evens and the odds.
JOURNALIST:
And whether you’re home.
TREASURER:
And whether you’re home. But Sunday night I was out with the hose.
JOURNALIST:
Good to see. If we can start with perhaps a more serious issue, Qantas – do you think of Qantas as the national carrier?
TREASURER:
Well, it is the national carrier in the sense that we designated it Australia’s national carrier. What happens with airlines is in order to get landing rights in other countries, you have to give them in your country. And for the purposes of doing that you designate someone to be a national carrier of Australia. Someone else is the national carrier of the UK and then you negotiate so many spots for your national carrier in return for so many spots for their national carrier. So, in that technical landing rights sense it is the national carrier.
JOURNALIST:
Would it stay the national carrier?
TREASURER:
It probably would because we have to designate somebody in order to negotiate under international airline rules. But, of course, if this deal went through, it would have different ownership.
JOURNALIST:
You say if this deal goes through – what do you think of the risk?
TREASURER:
Well, at the moment the shareholding has to comply with two Acts of Parliament – the first is the Qantas Sale Act which requires majority Australian ownership, the second is the Foreign Acquisitions and Takeovers Act. When a notification is given under that Act the Foreign Investment Review Board looks at it and ultimately makes a recommendation to me. So, it has got to go through all of those hurdles.
JOURNALIST:
On the face of it though, if you look at the way it is structured, it wouldn’t seem to transgress foreign ownership rules, would it?
TREASURER:
Well, the appropriate thing is for a notification to be given under the Act and for an investigation to be done. And then you have got to remember, at the end of the day the deal only goes through if the people who are currently holding the shares want to sell to the people who are currently wanting to buy them. So you pass your regulatory hoops but at the end of the day the shareholders – if they’re cleared, if you clear through the regulatory hoops – the shareholders make the decision.
JOURNALIST:
Does it bother you that the national carrier is going to be geared to the hilt?
TREASURER:
I would want to see this airline continue to offer full service on domestic routes and competitive international services. And I think particularly on the domestic routes where we do not have another full service airline - in the old days if you didn’t like Qantas you would go on Ansett – well, these days you can go on Virgin but Virgin doesn’t have the number of routes, the frequency of flights, it does not have full service. I think we would be very worried in Australia if we didn’t have a full service domestic airline.
JOURNALIST:
But can you seek any guarantees as part of getting this deal through – commitment to routes, commitment to service, commitment to employment?
TREASURER:
Well, the new management, the proposed new management, which in fact is the old management, bear in mind…
JOURNALIST:
Well the current management, ongoing management.
TREASURER:
…that’s right. Bear in mind there is no proposal to change the management, it is saying that and I think that is of great comfort…
JOURNALIST:
But in the world of business there is no guarantee?
TREASURER:
…Well we would want to know that there was going to be a continuation of a full service airline, domestically at least.
JOURNALIST:
So would you be looking for a written guarantee?
TREASURER:
I can’t go into these things, we will see what happens under the law. I don’t pre-judge these things.
JOURNALIST:
In terms of public interest and the level of debt that the airline is going to have, if you look at what happened in New Zealand with Air New Zealand, when it was about to go under the government had to step in, do you see the government in this country playing the same role of I guess lender of last resort, if Qantas was to run into trouble?
TREASURER:
Absolutely not.
JOURNALIST:
So they are on their own?
TREASURER:
They are on their own. Absolutely not. Any suggestion that you could take over an airline, get yourself in trouble, and then ask the taxpayer to bail you out is not on.
JOURNALIST:
Even though it is the national carrier?
TREASURER:
No way. We didn’t do it with Ansett. And I would say to anyone who wants to take over Qantas – you are on your own. You had better make sure your sums add up because it is your risk.
JOURNALIST:
Will they keep their monopoly on the US route?
TREASURER:
This is something that does get negotiated on the bilateral basis, that because we control landing rights in Australia, we can essentially control what airlines fly through Australia and on to other destinations. The government announced some time ago a liberalisation with the object of seeing whether Virgin would get up on that Pacific route and we announced then that we wanted to see more competition and we will wait to see what happens with Virgin and we said that after we had seen what happened with Virgin we would look at the remaining issues.
JOURNALIST:
But there are no guarantees, I mean I suppose my point would be, many were saying last week they have had a weaker argument now, a lot harder to come cap in hand when you are owned by a couple of bankers, as is when you are owned by a lot of mums and dads?
TREASURER:
Well that is a matter that people have to take into account.
JOURNALIST:
Not making any judgements?
TREASURER:
No.
JOURNALIST:
What do you think of the whole private equity phenomenon – do you think, like many others like John Stewart from the NAB and other very well respected commentators, that it will all end in tears?
TREASURER:
There is nothing wrong with private equity. Private equity is people putting up their own money to buy companies – what concerns me is the gearing that generally goes in association with it. If all that was happening was that instead of having thousands of shareholders you had a couple of big ones, not much would change. But the second leg of the deals as we have seen them, tends to be after the private owners get control or as a condition of getting control, they borrow huge amounts which they gear against the company. Now, the gearing ratios are much, much higher than anything that you would normally see on a publicly listed company…
JOURNALIST:
Too high, do you think?
TREASURER:
…and this was a phenomenon that occurred in the late 80s in our country and around the world, and we know that it did end in tears. Because there were a lot of companies that geared themselves too highly and a company that gears itself too highly, whether it is public or private, can get itself into trouble. And so gearing ratios, which at the end of the day are matters for directors and investors, can be unsustainable. And that is a problem.
JOURNALIST:
Do you think we have reached that point at the moment?
TREASURER:
Well the difference today, you see, is that interest rates are much lower than they were in the late 80s. But other than the change in interest rates it does not seem to me as if there is all that much difference between what is happening in some of these companies and what happened in the late 80s.
JOURNALIST:
What do you think the outlook is for interest rates, you are about to release revised forecasts for the economy. Nice Christmas present? Do you think they are going to stay where they are?
TREASURER:
We will be releasing our mid year review on Wednesday and it will update our economic forecasts, it will update the state of the Budget and a couple of things have changed very significantly since we brought down the Budget. Of course the biggest is the drought. The drought is much more severe than anybody anticipated back in May and that will have an effect on growth. So, we will update that on Wednesday.
JOURNALIST:
And were we looking at a cut in the surplus?
TREASURER:
Well, all will be revealed on Wednesday. Much as I would like to give you the Australian exclusive!
JOURNALIST:
I would always be happy to take that! Another issue, we saw a number of former defence chiefs on the weekend criticise the strategy in Iraq, what is the criteria that we should be using for when we get out?
TREASURER:
The criteria should be when the country has been stabilised sufficiently to protect democracy.
JOURNALIST:
To protect democracy – what does that mean?
TREASURER:
To protect the democratically elected Government remaining in office.
JOURNALIST:
And how far away do you think that is?
TREASURER:
Well there is a democratically elected Government and it has been elected by the Iraqis themselves and that is an enormous step forward. I haven’t seen anything like that in Iraq for a very long period of time. Obviously that central Government is having trouble maintaining security in some areas, particularly in the Sunni Triangle. Now, when the Government has sufficient by way of security forces and a professional defence unit that is able to maintain itself and maintain a continuation of democracy, that would be the key objective here.
JOURNALIST:
It could be years, surely?
TREASURER:
Well, the training of the Iraqi forces is going on all the time. The training of the security apparatus is going on all the time, they are being subject to terrorist attacks, but the Government itself is engaging with its critics…
JOURNALIST:
But mostly the country is in virtual, if not total, civil war?
TREASURER:
The country, well large parts of the country of course are relatively peaceful, including the area where Australia is maintaining its troops. There are some parts of the country which are subject to terrorist attacks and the assistance of coalition forces to train the security apparatus in the defence force is what is required to help the Government itself maintain stability in those areas.
JOURNALIST:
Do we send more people, do we send more people to help train? The US is considering more troops?
TREASURER:
Well Australia has made a very strong commitment from the outset and we think that that commitment is right, considering our capabilities and our contribution to the coalition.
JOURNALIST:
No more?
TREASURER:
Well we think the contribution is right.
JOURNALIST:
(inaudible) you are just throwing good money after that?
TREASURER:
Australia has been very successful in the area it is patrolling, and I think it has been very welcome and the area, I think, has benefited enormously from the reconstruction that is going on. The fact that schools have been able to open, bridges have been able to open, I think the Australian contribution has been a very good contribution.
JOURNALIST:
On a far, let’s say, smaller issue and certainly closer to home, your own electorate of Stonington, the home of the Stonington mansion seems to be close, can the Federal Treasurer of Australia save Stonington?
TREASURER:
Well Stonington is a magnificent property. Part of Victoria’s heritage, it was used as Government House and I would hate to see that wonderful heritage building demolished or destroyed in some way…
JOURNALIST:
Have you put a bid in?
TREASURER:
…by inappropriate - no I haven’t put a bid in - by inappropriate development. The council is concerned, the residents are concerned, I am the local member and on their behalf I am voicing their concerns. I have had discussions with the council about this, I want to see the historic building preserved. Now what we know is that this building was given to Deakin University by the Victorian Government, and this building can only be sold with the permission of the Victorian Government. I am calling on the Victorian Government not to let this building be sold for inappropriate development. I am calling on the Planning Minister to announce he will not allow it to be sold, if it is going to go off for inappropriate development. I am calling on the Planning Minister to say that he will not override the local council’s planning powers. Bear this in mind, Deakin University got this building from the taxpayers of Victoria for free.
JOURNALIST:
But that was a long time ago, and they now clearly need funds. Why doesn’t Government buy it?
TREASURER:
Why do they clearly need funds? Let me just remind you that the Federal Government awarded Deakin medical school recently with tens of millions of dollars and personally I ensured that a grant was given to Deakin University to preserve Alfred Deakin’s library. Deakin University has been very, very well funded. Now Deakin University wants to move out of a building it was gifted, gifted by the taxpayers of Victoria. Like any commercial enterprise it would like to make some money out of selling off its gift.
JOURNALIST:
Do you think it is being greedy?
TREASURER:
But I think that when you bear in mind that it was gifted by the taxpayers of Victoria, I think Deakin University can afford to have an eye to the public interest.
JOURNALIST:
So what is the answer here though, they clearly want to sell it, they look like they are very close to actually making a decision….
TREASURER:
Well they can’t…
JOURNALIST:
Should the State Government buy it, should you put it in (inaudible).
TREASURER:
They can’t sell it. They can’t sell it if the Victorian Government won’t allow it to be sold. So I am saying, in the first instance the Victorian Government has got to say we will not allow this building which we used as our Government House, we the Victorian people used as Government House - which was given to Deakin - to be sold off and destroyed or in some way altered to lose its heritage value. That is the first thing. The second thing is I think that once the Victorian Government made that statement then the three levels of government could sit down-the Victorian Government, which owned the property and gifted it to Deakin and controls the sale, the local council, the Stonington Council which wants to see it preserved for public use, and if need be the Federal Government because I am sure I could interest the Federal Government in assisting. They should sit down and work out how we are to preserve this magnificent mansion for prosperity and how we ensure it is available for public use.
JOURNALIST:
So bottom line, you would be prepared to put in the money if others come to the party?
TREASURER:
Well the Federal Government doesn’t need a heritage building, so it is not going to be owned by the Federal Government. But if the Victorian Government wants to preserve its heritage building or if the local council wants to have it open for the residents, I would interest the Federal Government in assisting. The Federal Government doesn’t want to own the property, it doesn’t buy houses, but gee we would love to help the local community if they have a public use for it.
JOURNALIST:
What has been the response of the State Government so far?
TREASURER:
Well the State Labor candidate for the State election appeared at a rally and promised that a State Labor Government would defend the Stonington Mansion, so I am expecting him to convince Minister Madden and Steve Bracks to make good on that promise. I don’t think I would want to be the State Labor Member who before the election said that the State Government would save it and then after the election allow it to go off for sale for development.
JOURNALIST:
On the whole subject of tertiary education, the ALP Federal Opposition Leader Kevin Rudd has put the HECS debt well and truly on the political agenda. Do you worry about not just the size of the debt but the impost on children, really as they go through education, they start life?
TREASURER:
Well the HECS system, bear in mind, wasn’t introduced by our Government, it was introduced by the Labor Party.
JOURNALIST:
But is the price too high now?
TREASURER:
Well let’s put that on the table. It is all very well for the Labor Party to worry about the system that they introduced.
JOURNALIST:
To be fair they are not arguing against the system, they are arguing against the cost.
TREASURER:
Ok, well here is the cost: a HECS place pays about 25 per cent to the University - I’m sorry, the HECS place pays about 75 per cent to the University and the student is required to make up the remaining 25 per cent with an interest free loan. So bear in mind the student’s HECS fee is not the cost of the place and a moment’s thought can tell you that, because if you look at a secondary school, private school, the fee for a secondary private school is far greater than the fee for a HECS place at university and that is because the taxpayer is subsiding about three quarters and the charge itself is about 25 per cent. They get an interest free loan and it is only repayable once they get into the workforce.
JOURNALIST:
And they are not too high, the fees are not too high?
TREASURER:
Well let me put it this way, I am sure if you are student and you are looking at that fee it is a big fee but what I would say to you is that it is interest free and it is only payable once you get back into the workforce. And if you compare this system with other systems around the world it is a much more generous system. As you and I know, if you want to go to university in America you pay about US$100,000 a year, with a loan that you take out from a bank that charges interest. Now in Australia your HECS fee might be five or six thousand dollars Australian, and it is interest free.
JOURNALIST:
So do you think that some people are being put off higher education?
TREASURER:
I don’t think there is any evidence of that. Our figures in higher education are higher then they have ever been. You know, as I said it looks like a large amount, but bear in mind it is interest free and it is only repayable when you are in the workforce and earning an income, some people in fact never repay it because they never go into the workforce.
JOURNALIST:
Well Treasurer we are almost out of time, have you done your Christmas shopping?
TREASURER:
Not yet.
JOURNALIST:
You have got a lot to do in a very short period of time haven’t you?
TREASURER:
Well there is always Friday.
JOURNALIST:
Part of the $33 billion, it’s a stunning amount isn’t it, that we are meant to be spending.
TREASURER:
It is a lot, but bear in mind this is a big economy now, this is a $1 trillion economy.
JOURNALIST:
Well we will get lots more information about the economy on Wednesday when you release the revised forecast, many thanks for joining us this morning.
TREASURER:
Thank Ali, good to be with you.