FAINE:
Good morning to you, Mr Costello.
TREASURER:
Good morning Jon.
FAINE:
If we could start by looking at the Qantas process please, the hedge funds say we are going to make money because this is going to fall over. They are betting – and they are not often wrong – they are betting that the Qantas process is going to go nowhere.
TREASURER:
Well it is up to the shareholders whether or not they want to sell their shares. All that has happened to date is that the Foreign Investment Review Board has found that foreign control would not alter under this bid and so the bid would allow it to go to the shareholders. The ACCC has found that competition would not be lessened so it allows the bid to go to the shareholders. But if you are a shareholder in Qantas and you don’t want to sell, then nothing will change in relation to the ownership because the bidders are requiring to get overwhelming support before the bid will go through.
FAINE:
Would you welcome the process going nowhere?
TREASURER:
It is a matter for the shareholders. I had an interesting conversation last week with a very prominent journalist who said to me that he was a shareholder in Qantas and he was very against the bid going through. And I asked him what he was doing with his shares and he said, ‘oh, selling.’ And I said, ‘well of course, if you don’t want the bid to go through and you are a shareholder, don’t sell them. It won’t happen.’ All that has happened from the Foreign Investment Review Board is that it allowed the bid to go forward. Now that is generally the case Jon, imagine if you were a shareholder, you have property in something and someone comes and offers you a good price, it is a big thing for the Government to step in and say you can’t accept it under any circumstances and so we rarely intervene. I intervened in relation to Woodside you will recall, but we rarely intervene because these shares are owned by individual Australians and whether they sell or not is a matter for them.
FAINE:
In a way though you engineer a win-win – you give the process and the markets the green light but at the same time you don’t suffer the humiliation I think many would see it, of Qantas – an iconic Australian business – being transferred to foreign ownership and you don’t cop the blame for it that way either.
TREASURER:
Well you do have to be very careful here because the bid will not transfer Qantas into foreign ownership. The bid as I have approved it, is for 51 per cent Australian ownership – you have got to remember this – the consortium is majority Australian. So even if this bid goes through it is not going to go into majority foreign ownership or majority foreign control.
FAINE:
It is widely touted though that that is an interim measure and somewhere down the track as the undertakings aren’t into perpetuity as you well know, things could change.
TREASURER:
Well the undertakings bind all of these people and if there is ever a situation where more foreigners want to come in that would have to be approved. But I have made it clear whilst I am around Qantas will never have majority foreign ownership.
FAINE:
Are you concerned as other have been about the level of debt in some of these equity funds and infrastructure deals?
TREASURER:
Leaving aside Qantas and speaking generally, I have warned about companies that gear themselves too highly. It is all very well to gear yourself in an economy which is as strong, as our economy is, and where interest rates are comparatively low if you look historically at business borrowing rates. But the economy could turn down, you could get an international event which will push up business interest rates and people in those sort of situations could get caught. Now, let me give you an example, I think two weeks ago Jon, the Chinese Government announced that they were going to change the rules on how much you could gear buying shares on the Shanghai stock exchange. That caused a huge fall on the Shanghai stock exchange…
FAINE:
And a domino effect through Asia.
TREASURER:
That is right. Well the next night the Dow Jones, New York fell and the next morning Australia fell. Not because of what has happened in our own time zone in Shanghai but because of the rebound back through New York. Now in relation to global business interest rates, these people are borrowing at lower credit ratings, you can get as a default in Argentina, in Russia, in Turkey – and I have seen it all – and all of a sudden the rates on these borrowings go up. And that is why I have warned a lot of these people that they have got to build in for unforseen events because you can get an external event in Australia which can move interest rate markets and affect your company back here.
FAINE:
The boom can’t go forever, can it, Peter Costello, warnings from banks on inappropriate lending practices that some of the big banks are seeing in some of their own competitors, 100 per cent, I see ads on TV for 100 per cent mortgages for properties for first homebuyers which is alarming, and we have seen that before and it all ended in tears, and unprecedented levels of household and credit card debt and the boom is set to…
TREASURER:
Well I agree with you. When I see these ads on television that advertise, when you have been refused by everybody else come to us and we will lend you 100 per cent, that worries me and I have called in the banks and I have spoken to the banks. This of course is mostly operating outside the bank sector in finance companies and mortgage originators and we have asked our prudential regulator, APRA, to again reinforce to these mortgage originators that they shouldn’t be allowing any laxity in credit standards, we are warning the public in relation to this and at the end of the day if they let their credit standards go and they take on bad risks, these mortgage originators and others are going to bear the cost.
FAINE:
But you understand the market forces at work here, rental accommodation increasingly scarce and people are desperate to get a toe-hold in the ownership market.
TREASURER:
Well what has happened is that we did have a position of oversupply in relation to rentals, say back around 2000. Most of that has now been mopped up and vacancies are well down and I think the next response in the market will be construction will go up and construction will now create more rental opportunities. But you have got an adjustment going on in the building and construction market at the moment.
FAINE:
We will wait and see whether that flows through and exactly when. Peter Costello, the Prime Minister in Tokyo says that he thinks Kevin Rudd is getting traction in the polls because Australians might think that the economy runs itself. The resources boom runs itself, doesn’t, that is nothing to do with anybody locally controlling the purse strings is it?
TREASURER:
The reality is that mining prices are high at the moment and that is good for the mining industry. I think the mining industry contributes about 5 per cent of GDP. Agriculture of course is extremely depressed at the moment…
FAINE:
Not all of it, no, no, milk and dairy products are at record prices.
TREASURER:
…well farm production is down 22 per cent, overall farm production is down 22 per cent in the last year, agriculture contributes about 3 per cent of GDP. So you have got one of our strong export industries which is strong, one of our strong export industries which is weak. The bulk of the Australian economy is in construction, retail, wholesale, services, transport, energy – this is where most people are employed and that is what keep economic growth overwhelmingly going in this country. Now, it is true we have had a long period of economic growth. Jon, we have had the longest period of continuous economic growth in Australia’s history since Europeans came to Australia and we are not quite sure what happened before that of course. So it is the longest period in Australia’s history. Some people think, ‘oh well, you know, economic expansion just runs itself.’ It doesn’t. During that period, during the period that I have been Treasurer over the last 11 years, nearly all of the other western countries have had recessions including the United States. We, almost alone, have had continuous economic growth. And it is not luck, it is not a fluke, it has taken a lot of hard work to get to where we are and we can’t get complacent about it.
FAINE:
Well no, but according to the opinion polls you are not getting credit for it either, in fact a record number of people support a change of government and I think on the poll published on the weekend, you would even lose your seat of Higgins.
TREASURER:
Well Jon, it is true that if you read the polls Labor is doing well and if the polls were right you would have eight Labor State and Territory governments and the risk of a Federal Labor Government. That is quite true. But the fact is that there isn’t an election today, there is going to be an election later in the year. The fact is that people focus on elections as they get closer to them and the fact is I think as people search out what Mr Rudd and those who stand behind him want to do with Australia, they will realise that they can’t take these things for granted and it is important to have a Federal Liberal Government.
FAINE:
The economy then according to you and Mr Howard doesn’t just run itself, but then election campaigns don’t run themselves either, could it be that the Liberals would do better in the polls if they had a younger candidate – Peter Costello – running against the younger candidate, Kevin Rudd?
TREASURER:
Oh Jon, look I have been asked these questions for about the last ten years and obviously you are trying to work them up but I won’t be biting on any of that I am afraid.
FAINE:
The argument surely has to be run and undoubtedly is being run around the backbenchers who will be wiped out on those figures in the latest poll that they’d do better even now, at this late stage changing jockeys.
TREASURER:
No well that won’t be happening. The Government is united. As I said last year, I will be doing everything I can for the re-election of the Howard Government with John as Prime Minister, with me as Treasurer, that is the way in which the Government has been successfully managed over the last ten years and that is the basis on which we go back to the people.
FAINE:
It is not then regarded as your personal destiny to be Leader of the Opposition though, has it? It has been your personal destiny to be regarded as the next future Prime Minister?
TREASURER:
I don’t think there is such a thing as destiny in politics. Politics is all about movement and chance and opportunity and that is the way I have always approached it.
FAINE:
So at this stage no rumblings, no phone calls, nobody ringing up saying, ‘what about it Peter, it is not too late?’
TREASURER:
No.
FAINE:
If I could ask you to comment on some other issues that are around, are you ordering any inquiry though the ATO to reported comments by senior clerics in Australia’s Muslim community that they think it is un-Islamic and according to the teachings of the profit it is un-Islamic to pay tax and in Australia Muslims shouldn’t pay tax?
TREASURER:
There was a report yesterday from a Muslim leader that some of the extremist Sheiks hold the view that income tax in contrary to the teaching of Islam and are apparently preaching on Fridays in the Mosques to that effect, that income tax is not imposed by Sharia law and that therefore a devout or faithful Muslim is not bound to pay income tax. I don’t want to enter into the theological argument about whether that is a right view of Islam or not but I am going to make this point. Every person in Australia is bound by Australian law. There is no Sharia law that is above and beyond Australian law and Australian law requires people to pay income tax. Every person in Australia pays income tax, that is how we get hospitals and roads and schools. And any faithful Muslim in this country is bound by the Australian law laid down by the Parliament. There is no law that supercedes it, they have an obligation to pay income tax – just incidentally, as they have an entitlement to get medical services and family tax benefits and all of the rest of it. It is not a one-way street in Australia, you don’t get the right to all of the benefits without paying your share of the income tax. Now, my Assistant Treasurer has already taken this matter up with the Commissioner of Taxation. We have asked him to look very carefully to ensure that everybody, regardless of their religion, is observing the income tax laws in this country.
FAINE:
Do you do religious profiling in tax audits?
TREASURER:
No they don’t.
FAINE:
Then how else could you possibly investigate this?
TREASURER:
Well we have asked the Commissioner to ensure that everybody, regardless of their religion, knows their full and proper obligations.
FAINE:
What is the difference between Catholic MPs saying that they are listening to the Pope to decide that they’d vote against cloning legislation and for instance the involvement of Imams in the political process by saying it is contrary to the teachings of the profit?
TREASURER:
Well a Catholic MP as a Member of Parliament will vote on a proposed law in accordance with their conscience and I suppose…
FAINE:
No, according to their religious leaders’ instructions.
TREASURER:
Sure, I suppose if a Muslim was elected to the Federal Parliament in accordance with their conscience they could propose a law exempting Muslims from income tax, I suppose they could. But I don’t think it would go through. If it did, then of course they would be exempted from income tax. But the laws that have gone through do not exempt anybody from income tax on the basis of Sharia law.
FAINE:
All right, we will talk about that in a moment, in fact with one of the leading Catholics in the Victorian Labor Government, Labor Party, Christine Campbell who is waiting to speak to us in just a moment. But Peter Costello, final question, there has been much debate here in Melbourne that you must have been familiar with about whether or not we are still getting value for some of our major events in particular the Grand Prix and the World Swimming Championships. Do you think it is time to review the major events strategy?
TREASURER:
I think these events are good for Melbourne, I have no doubt about that, I think it puts Melbourne on the international stage and you know, if you want to be an international city, you have got to have some international events. That doesn’t mean that you should be a patsy for everyone who wants to sell you an international event. You will find that there will be a lot of people who will bring these propositions around as to how you can spend taxpayers’ money, there will be a lot of people that will bring those propositions around, and you have got to be discerning. You have got to make sure that where taxpayers’ money is involved you are getting value for money. And it is not just value from the events by the way. That is assessing alternative uses for the money to make sure that the use of this money gets you the best benefit. Having said that, I have no doubt that these international events do help Melbourne and they do make it an international city and if you want to be recognised on the global stage you do have to have some events that get you attention on the global stage.
FAINE:
$30 million forecast loss for this years’ Grand Prix.
TREASURER:
Well that is what I say Jon, I can’t tell you the financials on this and I can’t tell you whether there would be other events that would give you better value for money. That is a matter for the Ministers concerned and no doubt they will explain all of the financials to you, it is a State Government matter, I don’t do any of that. But they are the two principles that I would follow – one; international exposure; but two; value for money including an assessment of alternative uses.
FAINE:
We have covered a lot of ground, thank you for your time this morning.
TREASURER:
A pleasure to be with you Jon, thanks.