FAINE:
Peter Costello good morning.
TREASURER:
Good morning Jon.
FAINE:
Warnings this morning about the overheating property market and the prospect of a further cut in interest rates leading to a difficult economic environment, there is not much you can do, is there, to deal with a booming property market?
TREASURER:
One of the points that I have been making over a period of time now is particularly in the investment market you see a lot of those high rise apartments going up around Melbourne, a lot of these have been sold off to property investors who look for a tenant, maybe they negatively gear and they wait for a capital gain. One of the warnings that I have been making is that people have to realise that property prices can come down, as well as go up, they should factor that into their investment plans and they should prepare for a bit of insulation in relation to their gearing, and I said yesterday there is no such thing as a one-way investment bet, just as you have seen stock markets correct, you can also see property markets correct.
FAINE:
But if interest rates are going to come down and every expectation is that they will by either one quarter or even one half of one per cent in just a few weeks from now, I don't think anyone is going to take much notice of that warning when money is cheap to borrow.
TREASURER:
Well the fact that money is cheap is actually a good thing. It is a good thing for business and for homebuyers. I am being a bit more specific. I am being quite specific about unit and investment properties, and you have got to remember this, if you are buying a property as an investment, and you want to put a tenant in, there are only so many tenants, and you do get to a stage where the number of units exceeds the number of tenants and when you get to that stage, prices on property and investment rentals can fall...
FAINE:
Well why don't you, why don't you deal with the problem by for instance, abolishing negative gearing?
TREASURER:
Well Labor did that, I think it was in about 1986, the economic...
FAINE:
Didn't last long.
TREASURER:
...well the economic fallout was so bad that they had to reverse their policy after 12 months. What they certainly proved is that as a policy measure, that was a failure.
FAINE:
Well why not for instance rein it in by saying you can only claim half of your negative deductions, instead of 100 per cent?
TREASURER:
Well the problem when you get into these sorts of areas if you try and put limits on the amount you can deduct for taxable purposes is that the complexity gets so great that people can always break down, they can use other names, and the complexity outweighs the policy. It has always been a feature of our tax law, that if you borrow to try and earn income, you are entitled to deduct your borrowings and I think that is right as a matter of principle, but the only point I am making here is that if you have been told by some promoter or some investment adviser, that a negatively geared rental property is a one-way investment, just look at it very carefully, because if something sounds too good to be true, in an investment environment Jon, it generally is too good to be true.
FAINE:
Well now people are jumping on the stock market band wagon and saying it is too late for property, the big money to be made is with the stock market, picking up nine consecutive days of rises, the first time that has happened since 1993, people are now negatively gearing to get into heavy stock exchange, stock market investments. Is the same thing going to happen there?
TREASURER:
Well the reason why stock markets have been down around the world is that the stock markets overheated, particularly in the United States. We had a huge build up of bubble, particularly in those technology stocks and the bubble burst, and it has come right down again. Now at some point things will pick up, I am not giving any investment forecasts in relation to that, but people will know that we have seen one of the biggest stock market falls of the post-war era over the last year. And again, when stocks, stocks are not one-way bets, and people have to take that into account.
FAINE:
Are you happy with the current interest rate differential between America and the rest of the world on the one hand and Australia on the other?
TREASURER:
Well the Australian economy is running stronger than America, and it is running stronger than Europe, and it is running stronger than Japan, and as a consequence those countries really dropped their interest rates to try and, bear this in mind, America has had a recession, Japan has had a recession, Germany is in recession, these are recession economies, and the Australian economy, by all historical precedent goes into recession when you have an American recession, that is what certainly was happening in the nineties and the eighties, and the fact that we almost alone of the industrial economies continue to grow meant that our economy is that much stronger. We didn't need the monetary policy response that the Americans, the Europeans and the Japanese have been forced into...
FAINE:
But...
TREASURER:
...that is one of the reasons why you get that differential. There are others of course.
FAINE:
...but that differential is driving the Australian dollar up and your choices are either to stop the rise of the Australian dollar by dropping interest rates, or keeping interest rates where they are in order to try and control the domestic boom.
TREASURER:
Well there is another reason why the Australian dollar is rising. It is rising against the American dollar because the American dollar is falling Jon, it is not just an Australian dollar story...
FAINE:
No, the Euro...
TREASURER:
...in fact it is more an American dollar story, and you can remember, say two years ago when the Australian dollar was falling and everyone said, what is wrong with Australia, and I think I was making the point, this wasn't that there was any problem in Australia, it was that the American dollar was rising and rising and rising, and it rose to unsustainable levels and the American economy went into recession. The American consumer confidence was dented and now the American dollar is falling, and from our perspective it looks like we are rising, but the much bigger part of the story is the American dollar is falling, it is correcting, it rose to unsustainable levels and it is now correcting.
FAINE:
Peter Costello when you were delivered your great disappointment, if I can call it that by John Howard, just on about two weeks ago, you said in response that you would feel now free to speak outside of your portfolio area, and the first thing you said is that you thought Australia should become a more tolerant nation. What did you mean specifically by that?
TREASURER:
I was talking about the kind of Australia that I would like to see, and I said I would like to see an Australia which was strong, which was secure, which was prosperous, which had high living standards, and tolerance. And by that I meant the kind of community harmony that we think is so important to our lives, the harmony in the community, in the neighbourhoods...
FAINE:
Was that a dig at the Prime Minister?
TREASURER:
No, it is one of the values that I hold very strongly. We can disagree with people on all manner of things, on politics or we can disagree on football, we can disagree on religion, and I have lots of views on all of those subjects, but at the end of the day in a society which is, which is open and tolerant, we can discuss those differences, we can handle those differences...
FAINE:
How do you go about...
TREASURER:
...we can be richer.
FAINE:
...how do you go about then patching up those differences?
TREASURER:
Well what I am calling for, and I think it is very important, is recognition of the role of community in our society. I have spent a lot of time thinking about raising living standards and getting people employment, getting Australia to be one of the strong economies of the world, and I characterise that as economic capital. But there is another side too, which is social capital, and this is the sense of community and relationships and support in families, and I want to talk a lot more about, what I call now social capital, because I think you need both economic capital and social capital to have a rich society. We can be economically rich but not develop our social capital, and I think we will be a multi-faceted and richer society if you have both economic capital and social capital.
FAINE:
Can I venture to suggest then what is emerging is a traditional, classical, small `l' liberal agenda from Peter Costello compared to the capital `L', or capital `C' conservative agenda of John Howard. You...
TREASURER:
I don't know...
FAINE:
...that you think the most pressing issue is the growing gap between the rich and the poor?
TREASURER:
Well look, I don't know how you describe all these things, but Jon you know me, I have spent seven years working on Australia's economy, I think there are some good results there, and I am not for a moment going to run away from economic responsibility, but I am just making the point, I have long believed this, and I think most people do, that you don't judge the sum of a community just by the economic indicators. There is another facet as well. You judge it by the community and the spirit and the sense of friendliness and the family support, and I have long and always believed this and I just think that it is worth reminding people that we need to attend to those things as well...
FAINE:
How does that translate into policy, whether it is policy inside or outside of your portfolio that you would like to see advance that is currently being neglected? What is your choice...
TREASURER:
Well...
FAINE:
...what is something you would like to do?
TREASURER:
...you know, I am not going to sort of lay down huge markers here and now, but I have just sort of indicated that I am interested in this area, I think it is the next big area for consideration, over periods of time I will try and make my contribution to that debate. I have done it a bit in the past, you might recall, I think it was last year talking about volunteerism and the importance of that in a community and how we can encourage that. These are issues that I think we can think about, I am not laying down any big policy announcements at the moment, but I am just indicating that it is an area that we have to keep on working on, keep on developing.
FAINE:
Is there some deal done between you and the Prime Minister on what areas you are allowed to flex your newfound social conscience?
TREASURER:
Oh no, as somebody who has been the Deputy Leader of the Liberal Party now for nine years, you have a right to make a wider contribution and...
FAINE:
You went on the reconciliation walk here in Melbourne...
TREASURER:
...sure.
FAINE:
...is that an area where for instance you want to see some changes made?
TREASURER:
Sure, well you have got a right to contribute to the debate in all of these areas and that is a right I will be taking up, Mr Howard obviously respects that and he said so. So, I am obviously not going to intrude into other Ministers' policy areas, that would be wrong to float policies, but when you are talking about directions and ways in which we can think about issues, I have a right, I intend to take up the right to make comments on those sorts of issues.
FAINE:
Did you think of walking away, did you think of pursuing a career perhaps at the top end of town, where there would be any number of opportunities waiting for you?
TREASURER:
Well look, in life you think about a lot of things and obviously about 13 years ago I walked away from that, so I have been there and I have done that and now I want to make a contribution to public service and that is what I intend to do over the next couple of years.
FAINE:
You have since you were a student politician you have regarded it as being a, well not quite a destiny, but certainly something you were determined to succeed at, if you think you are suddenly being cut off at the pass I would have thought that your alternatives might suddenly start to be evaluated more actively than they had been otherwise.
TREASURER:
Well, I have always believed that making a contribution to public life is one of the most important things that you can do...
FAINE:
You could well think that you have already done that and it is time now to move on.
TREASURER:
Sure, and if I didn't think that I wouldn't be doing what I am doing, and I still believe that, and I still have a very large contribution to make and I want to make it and I want to make it a broad contribution and some people will disagree with my contribution, but that is one of the virtues tolerance in a society, we all get to make our contributions and we tolerate other peoples views, and we get to discuss them and that is what I intend to do.
FAINE:
Thank you for your time this morning.
TREASURER:
Great pleasure.