ROSS:
Federal Treasurer Peter Costello joins us, morning Treasurer.
TREASURER:
Good morning Ross, Good morning John.
ROSS:
When did this story, there seems to have been something that has just gathered momentum over this last week or so, when did the revelation occur to you that this was going to be our worst drought ever?
TREASURER:
Well we were hoping for rain in September. It was necessary to get rain in September for the crops and traditionally September and October are wet months. But in September of 2006 we had rainfall deficiency intensifying over South Australia, New South Wales and Victoria and the consequence of that is that the expected crops won’t materialise.
JOHN:
Mr Costello, what does that mean to us, now we live in Melbourne, we don’t understand how bad it is out there, what effect does it have on the economy that is going to affect the average Australian?
TREASURER:
Well our accounts show that in June for example, we have got the June accounts in, farm production fell 2.3 per cent, it contracted. It’s a rural recession. If you had a contraction in the general economy at all it would be a recession but to have a contraction of 2.3 per cent is a rural recession and what that means is that farmers just won’t get an income, most farmers will not get an income this year. If they are lucky they will get some of their seed back, but they will suffer extraordinary losses with no break on the horizon. Now for the general economy, that will detract from the general economy but of course there are other parts of the general economy that are still strong but it will be felt like a recession throughout rural areas of Australia.
ROSS:
Leaving rural areas aside, you are sort of speaking about a rural recession - what prospect of a recession?
TREASURER:
Well the Australian economy will grow in the forthcoming year and it will be a decent rate of growth. That is because retail is strong, investment is strong but in the rural areas production will fall or be less this year than it was last year.
JOHN:
What can you do about this, if anything, that is, the Government?
TREASURER:
Well we can’t do anything about the rain obviously, but the Federal Government has already spent $1.25 billion on assistance to rural areas with what is called Exceptional Circumstances assistance. We actually give income support for farmers. Farmers are treated as if they are unemployed and are eligible for what we call Newstart or the unemployment benefits and that is their source of income. The Federal Government also provides interest rate subsides and this will be available to farmers this year, it’s not much, but it will be for many of them the only income that they will be receiving.
ROSS:
Tell us, I ask this question asking you to be mindful of the fact that somewhere out there in radio land is Andrew Bolt carrying a baseball bate, is this related to global warning?
TREASURER:
Well you see there is no doubt that this is going to be a very hot summer and people will be asking that question…
ROSS:
So what is the answer?
TREASURER:
…well it is far too early to say that this is the result or what is expected over the next ten, 20 or 30 years, this is much more likely to be related to El Nino effects, as you know, the currents in the ocean, but it does, you are going to get a hot summer and people are going that question.
ROSS:
I want to ask you to confirm, is it the worst drought ever?
TREASURER:
Well, we had a one in a hundred year drought back in 2002 and this is shaping up as bad if not worse in many areas. And the point is that some of these areas haven’t yet come out of the 2002 drought, so for them this is just a three or a four year continuation.
JOHN:
Is our resources boom over and does that mean that the good times are over as well?
TREASURER:
I think that you are not going to see prices rising from where they are. In fact I think prices will stabilise and some of them will come off and we have seen that already in the oil market and what that means is although the prices are good, they are good by historical standards, they are not going to rising so you are not going to get that windfall on the upswing.
ROSS:
Another quick question for you, the (inaudible) newspaper the Australian, it has on its front page that the new Reserve Bank Governor says interest rates are more likely to rise than to fall, that seems to jar with the other two front pages that talk of this calamitous drought?
TREASURER:
Yes it is interesting isn’t it, that there is quite a lot going on at the moment and I think it is best to sit back and to actually asses all of the data and whilst the global economy is still strong my view is that it has probably peaked, and that is the reason why prices are coming off. By the way this is not entirely a bad thing for us because with prices coming off oil has come down. You know, oil has come down 20 per cent over the last two months and at the bowser it has come off 20 cents a litre. We were paying two months ago about $1.36, the capital average price at the moment is $1.16 so that is not entirely bad that prices are coming off because prices come off on oil, that is good for consumers. Prices that cone off in gas and coal that is putting a bit more pressure on our exporters and of course with this rural drought and rural recession as I have described it taking place then there are some other factors in the economy which are working against growth.
ROSS:
We thank you for your time.
TREASURER:
It is great to be with you, thanks so much.