TREASURER:
Today the IMF released what is called an Article IV Report, it is a report that they do on every member country of the IMF and they released their report on Australia, which commends sound macroeconomic management, continuing structural reform and looks ahead to sustain strong economic performance. The Directors of the IMF commended Australia’s strong fiscal position, observing the elimination of net public debt by the Australian Government was an impressive milestone few countries have been able to achieve. With the Budget expected to remain in surplus in the medium term, Directors endorsed the establishment of the Future Fund to invest these surpluses to help Australia manage its long-term fiscal challenges. Now, when you see this report from the IMF, the international economic organisation, it is a very, very strong endorsement of economic management in Australia, the milestones that Australia has been able to meet, the fact that we are one of the very few countries in the world that have now eliminated net debt and the ambitious forward looking program of the Future Fund endorsed by the IMF, gives you an idea of how far we have come, but of course how we need to keep economic reform going to stay in a leadership position amongst the economies of the world.
Along with that report from the IMF in relation to economic management, the first Financial Sector Assessment done on Australia’s financial system was also released by the IMF. It endorsed the stress testing that we have been doing on the Australian financial system. It found that our financial sector was mature and strong, it noted that although there are vulnerabilities, as there will be in any financial system, we are well placed to cope with them, indeed taking action to cope with them, and to prepare for them, and it recommended a framework for the resolution of failed financial institutions and crisis management. This is something that the Government has been discussing with the banks. Not a deposit assurance system but a series of pre-planned arrangements which would allow deposit holders access to finance whilst an institution’s problems are worked through and eventually funded by a post-event levy. This is something that has been recommended earlier by the Australian Council of Financial Regulators, it is something that we had discusses with the banks. Not because there is a problem with any one of the Australian banks but because it is prudent to make sure you have these arrangements in place, in advance, in the very, very unlikely event that they were ever needed. So, we see both in terms of the financial sector and in terms of economic management, very, very strong reports from the IMF endorsing Australian economic management and calling for our reform program to continue, which we very much intend to do.
JOURNALIST:
Treasurer are you concerned about inflation figures coming out tomorrow?
TREASURER:
Well, we will get the figures tomorrow and then I will comment on them once we know what they are.
JOURNALIST:
(inaudible) higher interest rates?
TREASURER:
Well I think that some of the one-off factors that we saw in the last quarter should have passed through the system – particularly petrol increases and particularly in relation to fruit and vegetables – but we will know more about that tomorrow.
JOURNALIST:
Treasurer, the IMF review suggests that the Government review the role of the Treasurer with a view to clearly establishing the independence of the supervisory agencies. What is your attitude to that and in what circumstances could you get on the phone to Jeff Lucy or John Laker perhaps about (inaudible)
TREASURER:
Well, the Treasurer has certain powers under the statute and the circumstances in which I would speak to them would be the statutory circumstances. We have power in relation to mergers, acquisitions in the financial sector, licensing, all of those sorts of things. But, the Treasurer has no responsibility for day to day prudential management or indeed day to day corporate regulation. Those are matters which are left entirely to the regulators.
JOURNALIST:
Treasurer, do you think much about the current tension between the ATO and the Inspector General of Taxation?
TREASURER:
Well, the Inspector General is there to receive complaints. The Inspector General is there to look at systemic issues, to make recommendations accordingly. I think the system has worked quite well, I think where the Inspector General thinks there is something that needs to be brought to the attention of the ATO he should do so. They should have productive discussions and it should lead to improved administration.
JOURNALIST:
Treasurer, is the drought now sustained enough and lack of rain stream clear enough to warrant revising down the economic grade forecasts?
TREASURER:
The drought is very well established, it is worse than we expected in May when we were putting together the Budget forecasts, we would expect that agriculture would detract a little more than we expected, but we will not be revising overall growth forecasts because there may be some other areas for example that will counterbalance that. Our forecasts today are as they were in May and we will not be changing them until the time of the mid-year review.
JOURNALIST:
How much do you think the drought will now detract from that?
TREASURER:
Well, the drought is worse than was expected. The drought will detract from growth. Rural production had a negative quarter and I would expect that rural production will have some further negative quarters. Where you have negative quarters in a row, where there is an actual decline in production, you can call that a farm production recession. And that is what we will see. Very tough for people in rural areas and very tough for farmers. However, the composition of the Australian economy has changed. For example the financial sector is now a bigger component of GDP than agriculture. And of course the service sector is a bigger component than agriculture. So, whilst this will be very, very extreme in the agricultural sector, the Australian economy which is now broad may be able to compensate in other areas and that is certainly what we hope will be the outcome.
JOURNALIST:
Mr Costello, one area of the farming community that has been doing it tough in particularly, are the wheat growers of WA who had the depressed price because of the monopoly arrangements. Do you still hold to your view expressed a month ago that the sale of Australia’s export wheat should be freed up.
TREASURER:
I think there is a fair argument that in a situation where the market price is higher than the price that is being offered by the monopoly exporter, the monopoly exporter should give farmers, particularly in Western Australia, the opportunity to profit from that higher price. And this is view that I would put to the Wheat Board, and I think Western Australian farmers have a fair argument that if they had additional freedom they could get higher price and I guess a fair ask that they be given an opportunity to realise that.
JOURNALIST:
But why the structural question of the system?
TREASURER:
Well, that is the immediate issue and that is the way that I would approach the immediate issue. It gives you some idea of my thinking on issues generally.
JOURNALIST:
Are you would be aware, Treasurer, the (inaudible) is wanting to export the 2 million funds of WA wheat. Would you be turning some pressure on AWB not to use its veto power to stop that?
TREASURER:
Well, at the moment as you know, a bulk exporter can only export with permission from the Wheat Export Authority, the Wheat Export Authority must receive the decision of the Wheat Board. The Wheat Board facilitated an Australian grower operation to make the sale into Iraq on the previous occasion when the Iraqi authorities would not deal with the Wheat Board – you might recall that. That was very much in the interests of growers. Now, I think it is a fair argument where West Australian growers believe they can get a better price to facilitate a grower organisation that may be able to get that price for them.
JOURNALIST:
Treasurer, in your ongoing (inaudible) interest in energy security and those issues and given that there is forecasting work being done by ABARE and through the Energy Commission (inaudible) about the energy policy (inaudible), do you think it is time the country dealt seriously with the issue of a carbon price? Do you think that business needs the certainty of how carbon will be regulated in the future in order to make (inaudible) the investment decisions the industry needs to make over (inaudible)
TREASURER:
I think the industry does need long-term guidance and we have tried to lay that out in the Energy White Paper. We have also got our low emissions demonstration fund which is going to assist with some adjustment in the area and I hope we will be in a position to make some announcements in relation that tomorrow.
JOURNALIST:
But a carbon price, Treasurer, that is quite apart form the two initiatives you’re just dealt with? Do you think it is time that Australia considers a carbon price?
TREASURER:
Well, I do not support a carbon tax if that is what you are saying. So, in between my opposition to a carbon tax and my support for low emissions technology lies the answer to your question.
JOURNALIST:
(inaudible)
TREASURER:
Well, I am not really sure what implication you are putting in the question.
JOURNALIST:
Well, I will give you a specific example. An economist you have a high regard for, Warwick McKibbon, who is a member of the Reserve Bank Board, has an emissions trading model which sets the carbon price which aims to ameliorate the cost of that (inaudible).
TREASURER:
Well, no I do not like your description of a carbon price. He proposes a trading system, and a trading system works where you have capped emissions and where everybody that you propose to trade with has capped emissions. That is not the situation in Australia, nor is it the situation internationally. So, we are not facing that world. Warwick, for whom I have a high opinion, of course has done work on what that world might look like, but that is not the world we are facing at the moment. That is why I do not really go along with your question.
JOURNALIST:
Treasurer, the IMF says that if revenue exceeds budget forecasts this year that that money should be allowed to exceed budget, shouldn’t be spent, and it seems to have an attitude that we should be allowing larger budget surpluses, do you agree with this?
TREASURER:
Well I know your paper doesn’t.
JOURNALIST:
Do you?
TREASURER:
Because your paper regularly calls for larger tax cuts, so it is a funny question for you to ask.
JOURNALIST:
Treasurer, is there a crisis building in superannuation savings for baby boomers, particularly women, does this put pressure on the Government to reduce taxes?
TREASURER:
Superannuation is a very, very beneficial way of saving money. But to some degree people have been put off by the complexity and the frequent changes. I think the best thing to do to encourage people to put money into superannuation is to simplify it and lock the changes in long term. And that is what the announcement I made in this year’s Budget was all about. A very simple proposition for the overwhelming bulk of Australians who have their money in taxed superannuation funds – no exit tax. No tax on a pension, no tax on a lump sum. And the earlier you get your money in, the more you will be able to save in an extremely tax effective way. Now, I want to get that system in place, but I also need a second link and it is this: an undertaking from Labor to support it and not dismantle it. Because whilst there is a doubt as to whether this system will continue in the longer term, people won’t feel confident about putting their money into it. I find it extraordinary that the Labor Party is still yet to announce what its position on superannuation is. I saw the Labor Party’s inspirational hero, Paul Keating two weeks ago come out and say, Labor should change it if they get into office. People hear that kind of thing, that I might put my money in today and then the Labor Party might get elected and take away the tax benefits in two years or five years, it is going to undermine confidence in the system. So, you know, I want to get this huge structural change in place, I want it to be bi-partisan, I want people to have confidence and I think when you see that you will see people putting much more into superannuation.
JOURNALIST:
Treasurer, does the Federal Government have to take any responsibility for the findings of the HIA Housing Affordability Report today that showed housing affordability at a three year low and people pushing up towards the 30 per cent proportion of their full income going towards mortgage repayments?
TREASURER:
Well look, there are a number of factors here. The first of course is that interest rates are considerably lower than they were last decade and the decade before, the second is that unemployment is at a 30 year low. And the truth of the matter is that when people feel confident about their employment prospects they feel more confident to borrow. That is one effect, there is no doubt about that. The second effect is we have seen a very big accumulation of wealth in this country and a lot of that wealth is now in the housing market. There is a third factor I think, which is a bad contributor in relation to the housing market and that is the lock up of land, particularly in our big cities – particularly in Sydney. And I think we could do a lot more to make land more affordable. I think we have a land affordability crisis in some of our big cities particularly in Sydney. This is a big continent with a lot of room, there is no need to lock up land and to make it more expensive than it has to be.
JOURNALIST:
Treasurer is there a case for the Federal Government to contribute to establish a Melbourne to Brisbane railway as a major infrastructure project?
TREASURER:
Look, the project has been around for a long time, the proponents of the railway believe that it is commercial and that it will pay for itself and if that is the case then the private sector will build it.
JOURNALIST:
Mr Costello, just going back to wheat. Doesn’t the, does the events that happened in Western Australia suggest that the monopoly system for export wheat is just doing the growers (inaudible)?
TREASURER:
Well if you were a grower and somebody was offering you a higher price for your wheat than the law required you to sell it for, you would probably be a bit upset by that and I think in those circumstances – and we are talking about Western Australian wheat growers – they should be given the opportunity to test the market and that can only be done with the…
JOURNALIST:
(inaudible)?
TREASURER:
Oh well it might, but you know, let’s…
JOURNALIST:
Can it be done?
TREASURER:
…I said to you earlier Michelle, you know, let’s deal with the immediate issue, I have told you what my view on the immediate issue is, that probably gives you an idea as to where I go on these sorts of things and I think you know where I go on these sorts of things anyway.
JOURNALIST:
(inaudible) encourage (inaudible).
TREASURER:
I know, I know you are always trying to encourage me, it is only in my own interests that you encourage me, I know that. Sir.
JOURNALIST:
Mr Costello, the IMF relates commodity prices to interest rates and says that if commodity prices remain higher for longer that interest rates might also wind up going, staying higher than they would otherwise be, does this concern you, do you agree with that relationship?
TREASURER:
Well, the Reserve Bank in its most recent decision to move official interest rates cited the strong global economy. Principle reason. Now, a strong global economy is the reason for high commodity prices. Commodity prices don’t just go up for no reason, they go up because the global economy is strong and commodity prices will stay high whilst the supply hasn’t been expanded to meet that demand. Now I keep on making this point over and over and over again, the demand is strong, the price has gone up, that everywhere around the world people are trying to boost supply, not the least here in Australia, and when that supply comes on stream, prices are going to return to more normal levels. So undoubtedly the strong global economy, one aspect of which is strong commodity prices, has had an effect on the Australian economy, the Reserve Bank said that. But I also have said and I have said this over and over and over again, prices will return to more normative levels. The kind of prices that you are seeing at the moment will not be fixed forever and we are factoring into our thinking that there will be a turndown in those prices in the years to come.
JOURNALIST:
There are some very upbeat growth forecasts for next year, particularly for the second half of 2007 and I was just wondering whether you have given any thought to your 2007 election campaign slogans as far as economics is concerned?
TREASURER:
Well, if I have I wouldn’t be revealing my 2007 slogans in 2006, would I? That would make them rather passé by 2007.
JOURNALIST:
Fairfax has today said that (inaudible) media laws and the barriers that they have gone through are not good public policy (inaudible) three-way TV having encapsulated everything in the media market in them, is that sour grapes from Fairfax?
TREASURER:
Look, the Chief Executive of Fairfax is entitled to express a view, it is a free country and that is his view, there will be other Chief Executives who will have different views, they should be looked at on their merits. I don’t accuse them of having ulterior motives. You know, if I started doing that I would be as bad as the newspapers who accuse me of having ulterior motives.
JOURNALIST:
Treasurer, if we’re not yet looking in the world envisaged (inaudible)…
TREASURER:
And this is really going to be the last question.
JOURNALIST:
…if we are not there yet, we are not in an international emissions trading world, is there a case where Australia would seek to develop its own system or alternatively, what policy measures do you think are required to assist business to reduce their greenhouse gas emissions?
TREASURER:
Look, Australia wants to meet its Kyoto target. We are well on the way to doing that. We have done it in a range of measures. One was by halting land clearing in Queensland particularly, another will be by improving the technology in some out of date power stations. I think we should work to ensure that we meet our targets and that may require some small adjustments but they would only be small because the latest report that I saw shows that we are well on our way. Can I, this is one of the things about Australia you know, when we sign up to agreements we like to keep them. A lot of countries that sign up to these agreements and then never give them a second thought. But Australia when it gives its word, it meets its commitments. Now, even though we haven’t signed Kyoto we are going to keep to our emissions targets. We must be a model international citizen, there are some countries that sign and don’t keep, we don’t sign and we do keep.
JOURNALIST:
But what…
TREASURER:
So…
JOURNALIST:
…what (inaudible) measures do you envisage are required?
TREASURER:
Well, you heard my answer, I can’t as much (inaudible) as I love engaging you, I can’t go over and over it again.
JOURNALIST:
I think you have previously said that nuclear power is not economically viable in Australia, could you imagine, could you conceive of a realistic policy framework that would make nuclear power…
TREASURER:
I have said that it is not commercial as of now. Can I conceive a time when it will become commercial? Yes. I can’t tell you what that time frame will be, I don’t think it will be next year…
JOURNALIST:
Ten years?
TREASURER:
…I was going to say, I don’t think it will be three years and then you will say to me, will it be ten years? Maybe, possibly not. But it will, in my view, yes it will become commercial and when it becomes commercial someone will build it. I don’t think we should legislatively stop it, I think we should legislatively say, provided you meet all of the requirements in relation to safety and export controls and all those sorts of things, environmental consideration, that there is no legislative bar and then I would let the market work. And the day it becomes commercial someone will build it. Thank you.