FAINE:
Peter Costello, good morning to you.
TREASURER:
Good morning to you Jon. Great to be here.
FAINE:
Ansett, looking a little wobbly this morning. First of all the ACTU are unimpressed with the announcement from the administrators that only 3,000 jobs will be retained not 4,000 and of course the deal with the ACTU is critical to the success of the rescue bid. And the Sydney Airports Corporation saying, well, no deal, over the leases at Sydney Airport. So far, you're not telling us what we need to know. What's the Government doing to keep Ansett flying as this looks like it could fall over?
TREASURER:
Well, the Government's involvement was critical to the whole episode. The Government in the first place indemnified Ansett in respect of public liability in its aeroplanes - up to $10 billion of cover. Secondly we guaranteed people who bought tickets that those tickets would be honoured. Thirdly we guaranteed the employees' entitlements, up to the full entitlements for pay and the safety net for redundancy. So the Government has been integrally involved in all of the efforts to keep Ansett in the air.
FAINE:
But it's looking wobbly again now. Do you need to do more?
TREASURER:
It has now moved on a stage, where the administrators have now got a buyer. And they are, I think they have probably executed agreements to sell to this Tesna Consortium, Mr Lew and Mr Fox. The argument that is now arising is the shape of the airline under the Tesna Consortium. The Government is not involved in it. At this stage it is the administrator selling to a private consortium. Now, if the ACTU this morning was saying, well, we want that private consortium to take 4,000 jobs rather than 3,000 this is a matter between the ACTU and Tesna and the administrators. It is not something that involves the Government.
FAINE:
You can get involved with the Sydney Airports Corporation. Effectively you own the Sydney Airports Corporation and you can tell them that they can put aside whatever legal or other objections they have, or do you think they are doing the right thing?
TREASURER:
Well, if you read the correspondence in the paper today and that is what I am going on, I haven't been speaking to the Corporation directly but I will go on what is in the correspondence, the Airports Corporation has asked for details of the Consortium and the legal structure that wants to take over the property. I think that is entirely reasonable. The Airports Corporation owns on behalf of the public, this is a public asset, they have responsibilities to the public to make sure they know what the arrangements are. And as I read the transcript or the report of what happened in the court yesterday, they have written a number of letters to the administrators asking for that. And if that is what the argument is about, I think they are being perfectly reasonable.
FAINE:
So there's nothing the Government will do to try and influence the conduct of the Sydney Airports Corporation at this stage? The Tesna Consortium just have to come to the party as far as you're concerned?
TREASURER:
Well, I think the administrator has to get together with the Airport Corporation and work it out. I don't think it is a, it didn't seem to me to be a big policy objection. The Corporation has got its responsibility.
FAINE:
Yes.
TREASURER:
We manage the terminal. And we actually manage it on behalf of the public.
FAINE:
Yep.
TREASURER:
We've got to know, who is operating it? Who is leasing it? You know, what the terms and conditions are. The private sector consortium, the Tesna Consortium obviously wants to lease it or to use it on certain terms. They have got to get together. As I see it, it is a question of sitting down and working out the nuts and bolts.
FAINE:
What if it all does fall over?
TREASURER:
I hope it doesn't. I think that it would be best for the employees, best for competition, best for everybody concerned, probably best for the creditors, if the deal goes ahead. And I very much hope that it does. And I hope that the private sector consortium can put some more money in and operate a good airline. I wish them every success.
FAINE:
23 minutes to 9. The Bulletin, their cover story for this week's edition is that the agenda of the Howard Government for this term is to sell, a secret agenda, is to sell the rest of Telstra to give you a huge war chest, $50 billion is the figure mentioned, a huge war chest to offer tax cuts in the run up to the next election for a fourth term which would be a Costello Government of course, is it true?
TREASURER:
Well it is no secret that the Government policy after fixing up services in the bush is to proceed with private equity in relation to Telstra. It will only be done after we have met various standards. But the rest of it, about tax cuts, is obviously false. Because we have always said that if you had the proceeds of asset sales you should either use them for retiring debt or building up other assets. You wouldn't spend them. So, I can't see that we would be interested in that for a moment.
FAINE:
On the one hand then, you want to try to boost the value of the Telstra shares that you want to sell, you can't boost the value of those shares while you are subsidising a whole lot of services in the bush but you've got to protect services in the bush because that's part of the charter...
TREASURER:
Charter...
FAINE:
...and part of the promise you've made before you'll sell off the rest of Telstra. How do you do that?
TREASURER:
Well, you can put on these organisations what are called community sector obligations. We do it all the time. That you have an obligation to deliver a certain standard at a certain price even if you are a private sector operator. I am not sure it is a good example, but I am sure there are such requirements on the private sector train operators in Victoria. What you do in relation to these organisations, notwithstanding it is a private sector organisation, you say one of the conditions of you continuing to operate is you deliver services up to such and such a standard, you deliver them within so many days, you deliver them at such and such a cost. And that is what we do in relation to Telstra.
FAINE:
But Telstra, as we heard on AM this morning and in our news, Telstra are saying to Easymail customers, those are people who get free email out of Telstra, we're ending this service, we're not going to give anyone free email anymore, you've got to go onto a service instead that costs money. So they're doing the exact opposite of what you've just confirmed you'd like them to be doing.
TREASURER:
Well Jon I don't know if there is a community service obligation in relation to email. I know there is in relation to the telephone lines and that is what I am talking about, the telephone connection service and the providing of the telephone service. We do have community service obligations in relation to that. Telstra is in this position where it is now half private and half public. And it runs into all of these sorts of difficulties all of the time because on the one hand it is operating like a private sector company, it is competing against Optus...
FAINE:
Yep.
TREASURER:
...it is competing against other email services. On the other hand it is a Government owned instrumentality which has obligations to the public. Now we say in relation to the obligations to provide services, in relation to providing lines within so much time, and with so much cost, and particularly increasing the availability of services to the bush that we are going to put community service obligations on it, but in relation to many of these other areas, Telstra operates just like a private sector company.
FAINE:
But it's not a hard argument to run that email is the equivalent now of what telephones used to be 20, 30, 40 years ago. A lot of people use the email far more than they use the telephone now and you know, there's a whole lot, there's Hotmail, there's Yahoo, there's America On Line, they all offer free email services. Why can't Telstra?
TREASURER:
Well Jon, as I said, I don't know the details of Telstra's email offers. And I am not responsible for them. But you have made the point that there are a lot of private sector providers who offer free emails. And what I would say to people is if Telstra wants to charge you and there is a private sector operator offering free email I would take the private sector operator.
FAINE:
Well you certainly would. And Telstra would lose customers.
TREASURER:
And Telstra would lose customers and if Telstra comes, believes that it wants to retain those customers it may change its position.
FAINE:
So you'd be encouraging Telstra as you've given a shot and a serve to the banks from time to time to be more customer focused, what do you say to Telstra?
TREASURER:
Well, I would say to people, exercise your power of competition. Telstra is giving you a bad service in an area where there is free competition go to the competition. And Telstra will soon wake up to itself if it wants to keep customers.
FAINE:
And you're saying that as the Federal Treasurer, effectively in charge of 50.1 per cent of the business. You're telling people that they should think twice about using?
TREASURER:
Well, I am not technically speaking in control of the 50.1 per cent, I think either the Communications Minister or the Finance Minister is.
FAINE:
You're not without some influence?
TREASURER:
I, look, in an area where there is hot competition, if somebody is offering you free email, go to the free operator. And if Telstra values your custom and wants to bring that custom back, you will see that it will soon meet the offer and if it doesn't, well you will be getting free email with the competitor in any event.
FAINE:
Well, we've seen Bernie Fraser doing ads for superannuation and other financial institutions, is Peter Costello doing ads for other email providers? Mr Costello, Medicare asking for permission for a 13 per cent price hike, I know this is not your portfolio, that's the responsibility of the Health Minister, but in the last Budget you poured billions of dollars into health insurance subsidies in order to make the system more efficient, more affordable, to make more people have health insurance. It's just not working.
TREASURER:
Well Medibank either has or will apply for a rise. And if it is 13 per cent I can't imagine that the full 13 per cent will be approved.
FAINE:
Just an ambit claim?
TREASURER:
Well, a pretty unimpressive claim. I can't see why you would need a 13 per cent rise in a situation where the numbers who are taking out insurance is increasing, not decreasing, is actually increasing, where your consumer price index is nowhere near 13 per cent, why you would need a 13 per cent increase. And I will be looking with great interest to see why they say it. And if it is not a good reason and I can't see that it will be, it won't be approved.
FAINE:
The argument last year was that with the increased number of people taking up health insurance then the cost structures would change and price increases wouldn't have to be necessary.
TREASURER:
That's right. And that has in fact been happening. So I can't imagine what its reason would be. And unless it has got a real left-field reason that nobody else in the industry has thought of, I can't imagine it will be approved.
FAINE:
Any increase at all?
TREASURER:
Well, there might be a case for CPI type increases. You would have to have a look at it.
FAINE:
But nothing much more than CPI?
TREASURER:
I couldn't imagine 13 per cent.
FAINE:
Could you imagine anything more than CPI?
TREASURER:
Well, you can imagine an argument based on CPI. So let's see what their argument is.
FAINE:
16 minutes to 9 on 774 ABC Melbourne, Peter Costello the Federal Treasurer my guest this morning. The indemnity crisis, since the collapse of HIH, World Trade Centre and all those other difficulties, we have learned since last October particularly tourism, community organisations, all sorts of voluntary groups finding it impossible to get insurance cover or if they are offered it, it's at massively increased premiums, we're seeing races and sporting events being cancelled, street parties all sorts of things not happening that used to happen because people can't get insurance. A couple of days ago we spoke to your Assistant Treasurer Helen Coonan on the program, she's organising a national summit. What will be on the table for people to use as a starting point for some sort of resuscitation of insurance in this country or are you just going to all come together to talk about it?
TREASURER:
I think the first point that they want to establish is what's causing the increase. Some people say it is large verdicts. I have heard other people say it's not large verdicts at all, it the small verdicts, it is just that they are multiplying. And I have heard other people say that the industry itself is not being properly operated and passing on benefits to consumers. So I think at this meeting they want to get a grip on what is causing it. Having got a grip on it then they can start talking about the answers. The answers will predominantly require State legislation, you realise that?
FAINE:
And uniform state legislation.
TREASURER:
Well, it is possible that the states could go to different areas, but then you would have insurers who would have different premiums in different states.
FAINE:
It would be a nightmare.
TREASURER:
Well, it probably happens, for example, in relation to workers comp and motor car. There are different laws in different states with different premiums as a consequence. But, if you ask me I would agree with you, I think you should have uniform laws. But it seems to me that at the end of the day if you want to keep the premiums down, let's assume that there is no funny business going on in the insurers themselves, then you have got to either restrict the number of claims or reduce the size of the payouts.
FAINE:
(Inaudible)
TREASURER:
Which would require state legislation, by the way.
FAINE:
National Party leader here in Victoria, Peter Ryan, has come up with a proposal. He says you have an exemption for volunteers unless they are grossly negligent. You have minimum claim of $36,000 and a cap of $4.5 million, and that gives us a framework to start with. What do you think of that?
TREASURER:
Well, I would want to know more about volunteers. Let's suppose you are a volunteer CFA fireman and you went off to a fire and your fire truck burst, would you say to that person they could not get any compensation?
FAINE:
No, they'd be covered but if they caused somebody else an injury, would that other person be able to claim against the volunteer is the issue there or would they claim against the CFA? They would claim against the CFA not the individual fireman.
TREASURER:
Well, you know, I am not sure Jon, I would want to look at it. Let's suppose somebody goes away with the scouting organisation and has a terrible accident...
FAINE:
Yep.
TREASURER:
...some child, and is maimed for life. Would you say to that child, no compensation?
FAINE:
No, you would say you can sue against the Scouting Association but not the individual scout leader who was supposed to be responsible.
TREASURER:
Well then the Scouting Association would still have to have insurance, wouldn't it?
FAINE:
Yeah, yeah.
TREASURER:
Would still have to pay a premium and that is the thing they are complaining about.
FAINE:
And that is the level of complexity we... (inaudible)
TREASURER:
I don't know the answer.
FAINE:
No.
TREASURER:
I really don't know the answer. If I knew the answer I would fix it.
FAINE:
Yep.
TREASURER:
But at the end of the day, I say this is going to take State legislation, as you know, it is under the common law which the States control, and I think we have all got to face up to this point. It is not just, by the way, volunteer organisations. We have got it with doctors facing huge premiums at the moment. We have got it with commercial buildings...
FAINE:
Yep.
TREASURER:
...it is almost impossible to get terrorism insurance for commercial buildings, I don't think you can get it at the moment. We have got it with airlines, I don't think airlines can get insurance against terrorism at the moment and that is why the Commonwealth government is indemnifying these airlines. I raised this when we were at the recent IMF meeting in Ottawa and there are no underwriters worldwide now taking terrorism covers on airlines.
FAINE:
Yep.
TREASURER:
And so what you have got to try an feel a solution on an international level to problems like that.
FAINE:
11 and a half minutes to 9, couple of other issues. You're today announcing some new business tax reforms, according to the front page of the Financial Review. Some very technical things, asset value calculations, thin capitalisation rules, clean slate rules, none of which I understand. But I do see that there is a crack down on targeting tax losses and shifting them between related entities. In the wash up of Enron, or what might be the early days of the Enron scandal, it's now being called Enrongate in some of the American correspondence, is there a crisis in confidence, in particularly the community's perception of what auditors jobs really are? Do we have a, do we have some fundamental problems?
TREASURER:
Yes, I think this is a big problem. The big problem is what the public believes an auditor does and what an auditor believes he does, are different things. That is the first point. Most of the public believes auditors are sort of there to stop fraud. That is what the public believes. I am not sure that is what the actual legal position as understood by auditors, is. There is a question, and you are hearing this at the moment, is, what was the duty of auditors. You have got the second issue of, with these big international accounting firms that are both consultants and auditors, do they have conflict of interest appearing in different guises for the same company? And the SEC in the United States is now looking at that very (inaudible) and taking a tough view. The third issue, to come back to your public liability issue, if auditors are going to be liable, their insurance premiums are going to be great, there is now a problem with auditors getting insurance...
FAINE:
Yep.
TREASURER:
...commercial rates. We talked about doctors, airlines, buildings, volunteer organisations, you speak to auditors, they will tell you about horrific premiums and the inability sometimes to get professional indemnity insurance. So, you get the question of, will people want to do audits, will it make money, will they be able to afford their premiums? And this is an area I think, again not just in Australia, worldwide, which we are going to have to grapple our way through in the next year. And we will have to clarify, I think, what we expect of auditors. We will have to clarify when we believe that these big accounting firms can not have the same clients with different facets of the firm, and we will have to clarify what the liability of auditors and their indemnity arrangements are going to be. It is a huge area. Big problem.
FAINE:
So are you going to be doing that as a priority?
TREASURER:
Oh yes, this is a big, we had a report done on this, a Ramsay report, which has just come out. We will now, I think Jon, wait for the finding of the Royal Commission into HIH because this comes up very squarely in HIH. They will be looking very carefully at the auditors in HIH along with the management and everybody else. So, we will wait to see what the Royal Commission says in relation to HIH and then we have got to turn our attention to the conflicts of interest and legal liability questions for audits. It is a huge issue.
FAINE:
Huge issue indeed. Very briefly, reviewing foreign ownership of media and cross-media ownership rules, had meetings, according to various newspaper reports, with media proprietors over the summer break and your recent return to work. When are announcements going to be made or the public going to be let in on what the Government's proposals might be on that very delicate front?
TREASURER:
The Government's view is that there should be liberalisation in the media area in relation to foreign investment and in relation to cross-media ownership. The Government has said that it believes there should be some liberalisation. That would require legislation and the Government is going to put together a proposal, and has really more or less announced what its proposal is, and see what the Senate does with it.
FAINE:
Sit back, wait and see if you can get your own ambit claim up, do some argy-bargy with the Democrats if necessary?
TREASURER:
Well, improve the media regulation market. But, I make this point, if it takes legislation it will only be passed if you get two Houses of Parliament. I am confident it will go through the House of Representatives, so, the question then becomes will the Labor Party and the Democrats agree to it. I think we could have a better media regulation arrangement in Australia.
FAINE:
Better than the current one?
TREASURER:
Yes.
FAINE:
I don't think many people are going to argue with you about that. It is a question of what it is going to be.
TREASURER:
There will always be an ABC, Jon, you will be pleased to know.
FAINE:
Very re-assuring given the question I am going to ask you in a moment. Refugees, the Pacific solution, turning out to be very costly indeed. Do you have a figure on how much that has cost today?
TREASURER:
The Mid Year Review, we put down an extra $100 million for this financial year, and there will probably be a little bit more, but not much. And that is because the number of boats has diminished quite considerably in the last two months.
FAINE:
Because of the weather?
TREASURER:
No. The cyclone season is starting now, but there have been boat arrivals in December and January previously. No, I think it is because of the tough measures we are taking to enforce the border. There has been a drop. Now, I am not going to proclaim victory because another boat could arrive tomorrow, but the cost will depend very much on how many of the smugglers get through, and at the moment the smugglers, the success rate of smuggling has declined.
FAINE:
It pains me to give a plug to a rival media outlet but there has got to be a gag line for you in this somewhere, Jeff Kennett announcing that he is going to take up a, still unannounced, but prime time slot on 3AK commercial radio in Melbourne, struggling at 2 per cent audience take at the moment. Would Peter Costello, with his long history of less than cordial relations with Mr Kennett, would you agree to go on his programme if he invited you?
TREASURER:
Well, if I can survive you I could probably survive him, Jon, so if he invited me I probably would. But, I think, you know, if I were Jeffrey, I think my first day on radio I would invite as my guests Neil Mitchell and Jon Faine. I think that would be a real media stunt.
FAINE:
Don't hold your breath for that one. But what would you expect if you turned up there?
TREASURER:
Oh, a grilling.
FAINE:
A fair one? A balanced one?
TREASURER:
Look, I think all radio interviewers, yourself included, believe it is their responsibility to give a grilling and they believe it is their responsibility to give a grilling to everyone, and I assume that he would be the same as any other radio interviewer. And the general view, as you know, in defence of radio interviewers, and you will very rarely hear me say this, the view is that if you give the interviewee a grilling you get a better interview, better for the listeners. I don't think you always grill us because, you know, that indicates your own private view, the view is you just get a better interview and I am sure that any new interviewer on the block at 3AK or anywhere else would take the same view.
FAINE:
If the audience rating is 2 per cent, would you bother going on?
TREASURER:
Well, after I had done you and others. I went on, not much, but I went on a couple of times when Derryn, Derryn Hinch was on 3AK wasn't he?
FAINE:
Yeah.
TREASURER:
So I went on a couple of times, mainly to sort of keep them off your back. Your producer knows if you do not go on a radio interview the producers hound us. They tie up our telephones after a while so the only way you can use your telephones is by going and doing the interview every now and then.
FAINE:
Thank you for that insight into the other side of the process. Thank you indeed for your time this morning. It has been most interesting to kick off what is going to be a very busy year, as always.
Peter Costello, the Federal Treasurer in the Howard Government.