WILLACY:
Mr Costello, how can something you decided as bad policy only a month ago suddenly be good policy?
TREASURER:
Well, as your introduction was designed to make out, the Government and the Prime Minister has changed its policy and there’s no point in saying otherwise. It’s a change of policy – the Government has reduced petrol excise by 1.5 cents a litre, that happened at midnight…
WILLACY:
Wasn’t this bad policy, though, only a month ago?
TREASURER:
Well, the Government has changed its policy - that’s the point I made right up front - and we reduced petrol excise by 1.5 cents a litre at midnight of last night, but we’ve gone further than that, we’ve also abolished petrol indexation. So that means that the excise won’t follow the Consumer Price Index in the future. Now, we have to make sure that that decision, which I think Australians will welcome, is consistent with good economic policy. And what that will mean is that the Budget that I’m now working on will be a very tight Budget, a very tight Budget indeed. And I’ll be looking for the support of all of my colleagues and the Prime Minister to ensure that we continue to deliver low tax, proper targeted spending and keep the Budget in the black - the position that we got it into and we want to keep it in.
WILLACY:
Well, if we get to the Budget in a moment, can we ask, does this mean that you weren’t listening before? Obviously we had Queensland and WA – the Prime Minister says you’ve got it plainly wrong, does it mean you weren’t listening before?
TREASURER:
Well, the Prime Minister said it was plainly wrong and it was wrong because obviously the public believed that it was more important to have fuel relief than some of the other measures that we otherwise would have done. And as a Government, which believes that lower taxes and lower spending are preferable to higher taxes and higher spending, the Government’s made the decision that it will lower taxes. The corollary of that is that it will have to be tighter on spending. You can’t have both.
WILLACY:
Well, why did it take so long for you to hear that message from the electorate?
TREASURER:
Well, as I said, you can’t have both. What we’ll have to do now, is, we’re going for a reduction in petrol tax. We will have to be tight on spending so that we can keep that consistent with a good economic outcome and low interest rates, which is in everybody’s interest. I can promise you that the Government will not be leaving any stone unturned to continue the good economic management. We worked so hard to get this Budget back into the black. When I became the Treasurer of Australia what the Labor Party was doing is, it was spending every dollar of tax revenue, it then used to sell assets, like the Commonwealth Bank, and completely expend them and it was then ten thousand million dollars short…(inaudible)
WILLACY:
The ANZ’s Chief Economist, Saul Eslake, says Government spending – and that doesn’t include defence and interest rate payments – actually has increased by nearly 12 per cent last year. That’s the biggest rise since the dying days of the Whitlam Government. Do you like sharing that honour with Whitlam?
TREASURER:
I recall the first Crean budget in the Whitlam Government increased expenditure by 45 per cent. So I think we ought to actually get our facts correct on that one. I also recall…
WILLACY:
Well, according to Saul Eslake you’re the next closest.
TREASURER:
Well, I’ll have a look at Mr Eslake’s figures in due course. But I recall, if we just get our figures right, it was something like 45 per cent. Some people think it could have been 50 per cent. Let’s go through this Government’s record. When I became the Treasurer, the Labor Party spent every dollar of tax revenue, sold off assets, treated that as revenue, spent every last dollar and still was coming up ten thousand million dollars short. In my first Budget we cut eight thousand million from expenditure and we put the Budget into balance. We have delivered four surplus Budgets, we have repaid $50 billion of the $80 billion that the Labor Party ratcheted up in those last five years and we intend to keep the Budget in surplus.
WILLACY:
Well, looking at the current budget – well, let’s look at the current budget. This rash of spending on roads, petrol, defence, innovation, the scrapping of the trust legislation, economists are saying it means a lower surplus, which means a weaker Australian dollar, which economists say makes it harder for the Reserve Bank to cut interest rates.
TREASURER:
Well, look, I don’t know which economists you refer to there, but as the Treasurer let me – and I think I do know the Commonwealth Budget position as well as any economist – let me actually state what the facts are. We’re now coming into a budget which, after putting the Budget back in the black, we’ve had four surpluses in a row. We have now repaid $50 billion worth of the $80 billion that Labor ratcheted up in those last five years. We continue to keep the Budget in surplus and we continue to repay down Labor’s debt. Now, I think that’s a pretty good fiscal record. Let me tell you the greatest threat to Australia’s fiscal position: Labor. There’s only one thing that could really give Australia economic trouble in relation to the Budget and that’s the people that created the problem by ratcheting up $80 billion worth of accumulated deficits in five years. That’s the problem and we’ve got to make sure that we continue that economic management.
WILLACY:
Well, Reserve Bank Chief, Ian Macfarlane, seems to think the biggest threat is a bidding war in the lead-up to a Federal election. It would seem that war was well and truly under way.
TREASURER:
Well, I know Mr Macfarlane pretty well, I can assure you of that. Now, I don’t think that’s what Mr Macfarlane has said. And I think what Mr Macfarlane has his eye on, as the Government does, in relation to monetary policy, is the agreement which this Government put in place in 1996. We spelled out how monetary policy is to be conducted in this country. And monetary policy is to be conducted to produce underlying inflation of 2 per cent to 3 per cent over the cycle, and that inflation rate, the underlying inflation rate, stripped out of one-off factors, is down at the bottom of that band. That’s what Mr Macfarlane is targeting, by agreement with the Government and it’s the inflation in the Australian economy which will be the principal determinant in relation to interest rates – keep inflation low, you’ll keep interest rates low. Interest rates are now 7.5 per cent, an interest rate which we haven’t really seen since probably pre-Whitlam days other than under this Government.
WILLACY:
But you’re now saying that the belt has to be tightened. The Prime Minister says this extra spending means the Government won’t be able to spend on other things. What sort of areas will miss out, how do you tighten your belt?
TREASURER:
Well, that’s a fair point. You can’t do everything. You can’t reduce taxes and increase spending. Yesterday we reduced taxes. What that means is we will have to keep a tight reign on spending. That’s the corollary of this. But, as I said earlier, low tax, low spending. To my way of thinking, is a much better way of going than high tax, high spending. That’s the Labor way. So…
WILLACY:
Well, where do you reduce that spending, which areas?
TREASURER:
Yesterday we cut taxes so in the upcoming budget we’ll be very tight on spending. With the support of the Prime Minister and my colleagues, we are now working on that budget. I am working on that Budget at the moment. I am sure that we can deliver an outcome which will be consistent with good economic management.
WILLACY:
Peter Costello, thanks for joining us.
TREASURER:
Thank you.