TREASURER:
The consumer price index for the June quarter showed no increase at all. That is, no price rises for the June quarter putting inflation through the year at 2.7 percent higher than it was twelve months previously. The reason why there were no overall price increases for the June quarter, particularly, were influenced by the sharp fall in petrol prices, as petrol prices around the world became lower, and also the appreciation of the Australian dollar, which meant that in the quarter petrol prices were 9.6 percent lower than they had been in the previous quarter. In addition to that, fruit and vegetable prices fell 5.2 percent, this is consistent with seasonal patterns, and may be affected to some degree by some of the breaking of the drought, although the drought continues and has affected food prices generally over the course of the last year. But the good news is that there were no overall price increases in the June quarter and inflation remains low in Australia. Even if you abstract from the one-off factors in relation to fruit and in relation to petrol prices, the consumer price index moved by only 2.7 percent through the year. That is consistent with low inflation, consistent with our target for inflation, the Reserve Bank monetary target for inflation of underlying inflation being between two and three percent. It is a very, very solid outcome for the Australian economy and it means that we have got inflation to a low manageable rate which is consistent with good economic outcomes.
JOURNALIST:
Mr Costello are you concerned about the increase in prices for hospital and medical services?
TREASURER:
Well in relation to overall price movements, some prices go up, in the area of health, in particular some went up, some prices come down, in transport. But when you are looking at the overall price movement there was no price increase for the whole of the quarter and with an inflation rate of 2.7 percent, it is a very low outcome.
JOURNALIST:
House prices continue to go up, and inflation as you say is within the Reserve Bank’s range, do you think it is more or less likely to lead to an interest rate cut?
TREASURER:
Well the fact that inflation is low and within the band of 2-3 percent means that we are not concerned about inflation at the moment and the inflationary outcomes are consistent with the objectives that we have been aiming for. So, monetary policy which aims to keep inflation between the band of 2-3 percent over the course of the cycle would not be worried by any potential inflationary outbreak.
JOURNALIST:
Makes the economy in Australia quite different from the Americans who are more worried about deflation.
TREASURER:
Well the Australian economy has been growing stronger than the American economy now for three years. America went through its recession in 2000, it is yet to really emerge to the kind of growth levels that they have seen historically and it is still trailing Australia in terms of growth, which you said also there have been fears of even deflation. It is a funny thing inflation, you certainly want low inflation, but you don’t want it to go negative, it’s called deflation, and that can cause even bigger problems. That’s why we have a target of 2-3 percent over the course of the cycle, we are bang on that target now, and that’s a good inflation target.
JOURNALIST:
Mr Costello on that deflation is there any danger that you can see ahead of us moving into a deflationary period?
TREASURER:
No I don’t think so, because if you abstract from the one-off factors, such as transport, petrol which have been influenced by world oil prices and appreciation, the underlying rate of inflation is 2.7 percent on an annualised basis. The headline and your underlying rate are around 2.7 percent, so what that tells you is that inflation is low, but it is certainly not negative.
JOURNALIST:
On a very different issue, do you have a comment on the death of the Hussein sons?
TREASURER:
Well I think the people of Iraq will find it a relief that Saddam Hussein’s sons don’t have the ability to menace them anymore. These were people that were quite skilled in brutality, personal brutality, and a lot of Iraqis I think will breath a sigh of relief that they wont be menaced and threatened by the sons of Saddam Hussein and I hope that will contribute to a more confident Iraq, people will be more confident about the capacity to re-build their country, knowing that those two would be dictators are not in the position to menace them anymore.
JOURNALIST:
Mr Costello can I ask you about the Four Pillars policy? The major banks say there has been an improvement in small business lending competition, are you willing to re-consider the Government’s position on that policy?
TREASURER:
I think that the Four Pillars policy has worked quite well, I think that it is now well understood, I think competition has improved, but I don’t think that it is necessary to re-visit that policy at the current time, no.
JOURNALIST:
Will that persist in to the long-term?
TREASURER:
Well if there is a reason to re-consider it I will do it then, but I don’t see one at the moment.
JOURNALIST:
How much of an improvement has there been in small business lending?
TREASURER:
I think there has been a good improvement in competition, and it is one of the reasons why margins have come down, and you can get competitive rates now which are probably as good as, if not better than we have had in thirty years in Australia.
JOURNALIST:
Are there any other reasons why you oppose removing the Four Pillars policy other than the small business lending issue?
TREASURER:
Well I oppose removing it because I think the policy is in the Australian national interest.
JOURNALIST:
Can I also ask you on the superannuation scheme for politicians are you comfortable that while federal and state politicians receive guaranteed pensions, the rest of the Australian community doesn’t?
TREASURER:
This scheme has been in place for a long period of time now and has been worked over and the fact that so many people are in it and now have entered into it, and have made their contributions accordingly means that I think it is part of the landscape.
JOURNALIST:
You could close it tomorrow.
TREASURER:
No I couldn’t.
JOURNALIST:
You couldn’t close the politicians’ superannuation scheme tomorrow?
TREASURER:
No of course I couldn’t close it tomorrow. It is legislated….
JOURNALIST:
…(inaudible)…
TREASURER:
…of course I couldn’t, it’s legislated.
JOURNALIST:
…so you feel comfortable about your, you and your fellow politicians receiving a guaranteed pension scheme?
TREASURER:
Well this is a scheme that has been in place, I think for probably 50 years…
JOURNALIST:
Since the sixties. That doesn’t mean that you…
TREASURER:
…and as I said, I have no plans to change it.
JOURNALIST:
…do you feel comfortable with it?
TREASURER:
I have no plans to change it.
JOURNALIST:
Mr Costello where are things up to with AWB’s application to increase its stake in Futuris?
TREASURER:
That is a matter which as I understand it would go to the FIRB. It will be considered by the FIRB.
JOURNALIST:
You have no timeline on when that might be due?
TREASURER:
I can’t tell you, I’m sorry.
JOURNALIST:
Will the mission to the Solomons cause any problems to the Budget?
TREASURER:
It will be an expensive commitment for the Government, yes it will be. It is something that I think is Australia’s responsibility because this is an island which is in severe difficulty and has requested assistance. We have a situation where there is a breakdown of law and order and the Australian commitment is a very large one, and an expensive one in terms of military commitment and police commitment, and we will have to factor that into our budget thinking. It is just another call on the Budget.
Now I notice today that Mr Crean is talking about tax rises. When the Labor Party released its education statement today, make no mistake, its education statement involves a tax rise. That is increasing the cost of tax on diesel for the mining industry. First policy released, first specific tax rise from the Labor Party, and what it confirms is what I have always said, that Labor’s plans to spend more involve taxing more. And we had a statement from Martin Ferguson in the Parliament, as recently as last month, in support of the diesel fuel rebate. Martin Ferguson said in the House, in the House of Representatives on the 25th of June 2003, the diesel fuel rebate, or the energy credit grants as it is now known, “are very important to the operation of a range of industries, which are exceptionally important to regional Australia.” Well today Mr Crean indicated that he wanted to abolish those grants to some degree in relation to the mining industry, notwithstanding they are exceptionally important to regional Australia, that will make Australia’s mining industry less competitive and it will cost jobs.
JOURNALIST:
You say the Solomons is going to be expensive. Are you looking at $100 million, $200 million?
TREASURER:
We are looking at hundreds of millions, yes. Thank you very much.