FAINE:
Mr Costello, good morning.
TREASURER:
Good morning John.
FAINE:
President George W. Bush is asking Congress for an additional $75 billion US dollars to fund a war. Do you need extra money to fund a war?
TREASURER:
What I have said is, that the deployment that has already taken place, the land, the sea, the air, will be of the order of hundreds of millions of dollars which will be funded in this financial year.
I can't put a final cost on what will be involved, because obviously we don't know how long the war will go, that will depend on how long the war goes. But it will certainly be a very substantial commitment.
FAINE:
Do you need to allocate additional funds in this year's Budget?
TREASURER:
Well, we needed to allocate additional funds in this financial year of hundreds of millions and we have...
FAINE:
How many hundreds of millions?
TREASURER:
Well, we have out a large sum aside but I do not want to give a final figure, because I don't yet know how long the war will go, of course we hope it will be short.
FAINE:
No, but of course until the war is over you can never add up the cost, but if the US is saying they need an extra $75 billion just at this stage, that raises the obvious question, how much extra do we need to allocate? And then does it push your Budget into deficit?
TREASURER:
I am confident that we have allowed all of the funds that are required to support our fighting men and women in this financial year. I am doing next year's Budget at the moment, I will be bringing that down in May. By May I hope we'll will have a better fix on what will be required, if any, in the next financial year. But you have got to bear this in mind, Jon, we have had a very big, substantial, build-up in defence expenditure in the first place. We had East Timor, which at its height was about a billion dollars per annum, and over the next 4 years we have allowed $2 billion for continuing troops in East Timor. We then announced a White Paper of capital expenditure of $27 billion over 10 years...
FAINE:
Yes.
TREASURER:
...we then increased for the War on Terror about another $500 million...
FAINE:
Yes.
TREASURER:
...in last year's Budget we had a 4 year programme of $1.2 billion to strengthen our security, and in this year, in addition to all of that we have had an allowance of several hundreds of millions for operations in the Gulf.
FAINE:
I have done a ring around this morning with my producers of various defence analysts and strategists. They estimate it can't be costing less than a billion and this must push your Budget perilously close to going into deficit. Can you rule out a Budget deficit because of the additional costs of this war?
TREASURER:
Our Budget is very much on track. We brought down a Mid-year review...
FAINE:
Well, it can't be on track with the magnitude of unexpected expenditures come in?
TREASURER:
...we brought down a Mid-year review late last year which showed that the budget was in surplus and the surplus was several billion dollars. Now, that will be affected by the additional expenditures, but the Budget is still on track.
FAINE:
But you didn't answer my question about the deficit. Can you rule out a deficit?
TREASURER:
Jon, I don't give a daily run on the Budget. That is because I do two statements, a mid-year statement and a May Budget. I do not give out a daily run on how things are going, but I can tell you it is still very much on track.
FAINE:
Do you expect the deficit to still, be, sorry, the surplus to still be there? Can you avoid a deficit by the end of the current year?
TREASURER:
Well, as I pointed out to you, the mid-year forecasts were in excess of the forecasts you have just given for additional expenditure.
FAINE:
I'll read between the lines there. So you are confident you might just be able to avoid a deficit? If it's a (inaudible)...
TREASURER:
Well, let me tell you what I have told you on several occasions...
FAINE:
Hey?
TREASURER:
...the Budget is on track. It will be affected by additional expenditures of the order of hundreds of millions of dollars in this financial year. What it will take in the next financial year, obviously we will assess by May. And I am doing the Budget at the moment as we speak.
FAINE:
Defence is not your favourite portfolio, they are notoriously bad at spending money, there has been endless reviews of their budget over-runs. Are you confident that they have got a better handle on it now?
TREASURER:
I think things are improving. We had some bad projects, didn't we, with the Collins Class submarine, I suppose the most notorious. I feel that we are making progress in getting that back under control, we have been working at it for a long time. But, Jon, we put down a statement back in the end of December, of new Defence acquisition of $27 billion. We increased the Defence budget quite substantially to get the forward acquisitions going on a long-term basis. That is a lot of money, $27 billion over 10 years, and we are sticking to that. So, the point that I am saying to you is defence spending over the last 3 years has been quite substantially increased for East Timor, for the War on Terror, for domestic security, for the Defence Paper, in addition to that we now come to the Gulf. But we had made provision for quite a significant build-up already before the Gulf war became a reality.
FAINE:
Well, you have got as well as the cost of the Afghanistan expedition, there is the ongoing cost of East Timor at the same time as the ongoing cost of the Gulf...
TREASURER:
Yes.
FAINE:
...so is there enough to cover it?
TREASURER:
People don't realise that the ongoing commitment in East Timor is very substantial.
FAINE:
Is that more expensive than the Gulf War?
TREASURER:
Well...
FAINE:
The Australian military...
TREASURER:
...in the first year it was, yes. The commitment that we made in the first year was of the order of a billion dollars, continuing, over the next 4 years we are budgeting for another $2 billion in East Timor, that is over the next 4 years. So, the East Timor commitment was a very substantive commitment, and in terms of the forces that deployed, larger than the Gulf. And those forces are still deployed.
FAINE:
If the Gulf War results in lower oil prices, does that make it worth while?
TREASURER:
This is not about oil. This is not about oil at all. This is about weapons of mass destruction. If it results in the elimination of weapons of mass destruction, that makes it worthwhile.
FAINE:
Regardless of what happens to the oil price?
TREASURER:
Regardless of what happens to the oil price. If this results in the elimination of nerve gas, and anthrax, and other weapons of mass destruction, then it makes it worthwhile.
FAINE:
If Saddam Hussein had nerve gas or weapons of mass destruction would you not have expected him to have used them in this last week?
TREASURER:
Not necessarily...
FAINE:
Well, he wouldn't wait until the invading armies are close to his own people, he'd have used them when they were distant and gathered in one place instead of being dispersed?
TREASURER:
Not necessarily. He might also have used them when his own troops, his own Republican Guard are put into the fighting. And you have got to have the troops that are actually equipped and trained to use them. Now, I hope he doesn't use them...
FAINE:
I'm no military strategist, Peter Costello, but it makes sense to me if you have got 200,000 invading troops massed on the border, distant from your own people, well that is when you would use your weapons of mass destruction, not when they are on the outskirts of Baghdad and dispersed across a wide front.
TREASURER:
I don't want to go into what would be an operational matter. But I just make this point to you Jon, to now proclaim that Saddam has not, or will not, use weapons of mass destruction, would be foolhardy. I think we have to work on the premise that he will use the weapons that are available to him.
FAINE:
Alright, just finally in the time we have got available, Peter Costello, a much smaller skirmish on a local front. The presidency of the Victorian Liberal Party, Helen Kroger or Peter Clarke?
TREASURER:
My view Jon, is, that the Party has to re-build itself, and it has to unite, and it has to reform itself. And I make this point, that, we will have a federal election, which is due by next year, and I want the Party fully focussed on that federal election. This is the one government in Australia we still hold in Canberra...
FAINE:
Isn't it extraordinary in 2003 it is still the Kennett and Kroger forces fighting each other in the Liberal Party of Victoria?
TREASURER:
Well, I think you have got to put the past behind. We have been out of office now since 1999 and, you know, we should have come to grips with the fact that we have been out of office at the State level nearly 4 years, and the next state election is not due for, what, another 4 years.
We have a federal election, probably next year, and I want the Party to unite and to focus on that in supporting our federal candidates to make sure that we can hold in Victoria and hold the one government in Australia that the Liberal Party still holds in Canberra, the Federal Government.
FAINE:
Thank you for your time this morning, it has been most interesting.
TREASURER:
Thank you very much.