TREASURER:
This morning's announcement in relation to monetary policy means that interest rates are stable for the 10th month in a row, home mortgage, standard variable rate remains at 7.05 per cent and Australia's low interest rate climate continues. Economic management is not an accident, it's not a fluke. It is not an accident that Australia has a growing economy with low inflation and low interest rates. It requires a lot of skill and management and hard work and application and consistent policy - the policy that the Government has put in place over the last 8½ years. Today I release the Government's economic policy statement, which is about a stronger economy with a stronger Australia. The policy sets out some of the achievements of the Government over the last 8 just years. I'll direct you to page 8 to just one grab in this policy. You'll see that in 1996 when the Government was first elected, the Government was paying nearly $10 billion in interest payments on its crude net debt of $96 billion. By reducing that net debt by $73 billion and putting Australia in one of the strongest fiscal positions of countries of the developed world, our interest payments have now fallen to under $5 billion. We are saving $5.5 billion per annum in interest payments. The Government is now saving $5.5 billion per annum in interest payments and that's money that could be spent on investing in better opportunities for Australians. It wasn't an accident, it wasn't a fluke. Reducing net debt by $73 billion is now producing benefits for all Australians.
There are some very big differences between the Government and the Labor Opposition in this election. I just want to highlight one of the real, significant differences in terms of economic policy which is emerging. Some years ago I released an Intergenerational Report, talking about the challenge that Australia will face with the ageing of the population over the next 40 years. It's become a template for us. The decisions that we make determine to set Australia up for the long term to cope with the ageing of the population. Some of the decisions that we have made to deal with that ageing of the population, have included the introduction of the Superannuation Co-contribution Scheme to give middle and lower income earners an incentive to invest in superannuation with $1.50 from the Government for each $1.00 they put in, subject to limits based on income.
We've announced the closing of the unfunded Public Sector Superannuation scheme and announced a fund which will grow to meet the liabilities of that scheme over the next 40 years. We've put the Pharmaceutical Benefits Scheme on a sustainable basis, the fastest growing area of Commonwealth expenditure.
All of that is at risk in this election. The Labor Party proposes to abolish the Co-contribution Scheme and bring $2 billion out of people's savings over the next 4 years. The Labor Party proposes to reopen the unfunded Public Service Superannuation Scheme. The Labor Party proposes to undermine the sustainability of the Pharmaceutical Benefits Scheme and the Labor Party proposes opening an unfunded, open-ended new health scheme which over time as the population ages will become one of the most significant liabilities on future generations.
All of those decisions are anti the future. They run contrary to the challenge that we know is going to come with the ageing of the population. It's almost as if the Labor Party hasn't read the Intergenerational Report – has let it go right over its head. It has taken decisions which fly in the face of it.
The second thing is there is a big difference in economic policy in this election between the parties on the way to grow a prosperous economy. We believe that improving participation and productivity are absolutely essential. Improving participation for older workers, we announced the mature-age workers tax offset. Labor would abolish it. Improving productivity we've announced a proposal to improve Australia's industrial relations, to take productivity improvements into the heart of every factory and every enterprise. The Labor Party would reverse that and take Australia's industrial relations back to the ‘70s and the ‘80s. Nothing could be worse for our productivity improvement than Labor's industrial relations policy. It is a risk to Australia's economic future.
So I launch this policy today, it sets out what this Government proposes to do to improve participation in productivity, what this Government proposes to do to deal with our greatest to date economic challenge, the ageing of the population. And our Government's achievements to build a stronger economy and a stronger Australia and our proposals to continue that in the future.
JOURNALIST:
Mr Costello, do you agree with the economists who expect an interest rate rise either before Christmas or early next year?
TREASURER:
Well, I obviously don't comment on day to day movements in interest rates and I haven't since I put in place Australia's monetary policy arrangements in 1996. The agreement between myself and the Governor of the Reserve Bank which is the current framework that applies. But I'll make this point, over the last 8½ years we have had sustained period of low interest rates. It has been backed by improving productivity and keeping inflation low and it has been backed by putting the Budget into surplus and repaying debt. The track record of the Government is there for all to see and I believe that if the Government is re-elected it has the experience to continue to manage the Australian economy strongly. I do not believe that Mr Latham or Mr Crean has that experience. And I wouldn't vouch for the possibilities if they were to take economic management of this country.
JOURNALIST:
Treasurer, you're saying that the domestic improvements have a significance impact on interest rates. Two points, one, interest rates in Australia is higher than most other Western Countries and two, do you not accept that the biggest influence of all global (inaudible) economy on interest rates?
TREASURER:
Well can I point out that the two parts of your question are mutually inconsistent. One, you draw a distinction between Australia's interest rates with overseas and then you say, but overseas influences determine Australia's rates. You can't have it both ways. Now let me answer your question. The official rate in Australia, the official rate, is higher than the official rate in the United States. Why, because the United States was a recession economy. You are comparing a growth economy to a recession economy. The reason the official rates went lower in the United States is their economy went into recession in 2001. Our economy continued to grow, and so the Federal Reserve in the US was basically trying to dig an economy out of recession, we have managed to avoid recession here in Australia. If the US economy comes out of recession, we hope it does in a sustainable way, interest rates will move up in the United States, so that is really the answer to your question. The domestic policies of keeping Australia out of recession and in growth economy meant that monetary policy diverged, but for a growth economy, and this is a three and half per cent plus growth economy, these are historically low interest rates.
JOURNALIST:
Treasurer, a survey, a broader survey of independent economists not one of those economists supported your claim to interest rates will automatically be lower under a Conservative Government than a Labor Government. What do they know that you don't?
TREASURER:
Well, I would rather say what don't they know that I do. And, of course, what they don't know of course is that I don't think that they have any idea of the enormity of the Labor programme. You see, let me tell you what Labor is promising now in this election. $40 billion of new spending which they say is backed up by $30 billion of savings. So they say: Oh we are only proposing to spend $10 billion. What I know is that a very large proportion of that $30 billion of savings does not exist. It just doesn't exist. I mean, it would be alright if every one of those $30 billion savings existed. Then you could say: Oh Labor's only proposing to spend $10 billion more, but the large proportion of it doesn't exist. The so-called participation dividend from a tax policy just doesn't exist. The costing of the Medicare Gold just doesn't exist. It doesn't exist, as ….
JOURNALIST:
(inaudible) back onto the economists …
TREASURER:
… (inaudible) No, no, no … these economists ….
JOURNALIST:
… (inaudible) …
TREASURER:
Hang on, hang on, these economists, let me ask these fourteen economists that you quote. Have they costed the Medicare Gold package? Are they allowing for what would happen if it were introduced? Have they looked at the participation dividend? Have they factored in what will happen when that doesn't materialise? You see, that is the first point. The second I would say is this. Labor's industrial relations policy itself will prove inflationary and will put pressure on interest rates. Now you say: Oh, these fourteen economists. But we have had Access Economics, Labor's tax coster do a report on the damage that its industrial relations policy would show. We had Mark Wooden, from the Melbourne Institute, Labor's participation dividend coster, talk about the damage. When you start factoring in the damage of the industrial relations policy, when you start factoring in the unfunded promises and the non-existent savings, the magnitude of the programme becomes very worrying indeed.
JOURNALIST:
Treasurer …
TREASURER:
Now all I say is you can not expect those economists to be on top of all of those details, and I do not think they are, but when you do start factoring in, it is a very worrying thing.
JOURNALIST:
Those economists play a very important part in financial markets, is this a concern to you that economists aren't doing their job, that they're not aware of these policies that are obviously very important.
TREASURER:
I would not expect economists to be experts on costing policies, particularly policies that have only been released, some of them in the last two or three days.
JOURNALIST:
But they're with the banks, (inaudible) betting money on every day to find where the economy is going to go. These economists have to know which way the economy is going.
TREASURER:
Well, can I say I have to know which way the economy is going. I have actually been responsible for economic management for the last eight and half years, and I did actually put in place the statement of monetary policy, and I did actually appoint the Reserve Bank Governor, so it may well be that I may well know a little about the economy…
JOURNALIST:
Can you …
TREASURER:
… after, after having been responsible for economic management for the last eight and half years, and I may know a little bit about the costing of these policies and operation of industrial relations. What I am saying on the basis of all that, and I do not think it is contestable, is that Labor's industrial relations policy will undermine productivity and increase inflation, and Labor's $30 billion worth of savings do not exist.
JOURNALIST:
Treasurer, you've just quoted some economists the Access Economics, the Melbourne Institute expert, can you name a single economist who supports your position that interest rates will rise under a Labor Government.
TREASURER:
Well I thought David Hale this morning in The Australian said that there could well be a flight of capital if Labor is elected.
JOURNALIST:
This might be (inaudible) in Australia Treasurer, so …
TREASURER:
Sorry, what, he is no longer an expert, because he is not an Australian? You asked me the question, David Hale was quoted in The Australian today as saying: if Mr Latham implements his policies, there could be a withdrawal of investment from Australia. Now you asked me to name someone, there is today's paper.
JOURNALIST:
Treasurer, you've spoken a lot about Labor's policies and the inflationary impact. What about your own policies, some of then including, for example, the Medicare Safety Net, which seems similarly open ended in the health area?
TREASURER:
I do not think it is open ended because it is subject to a first payment of the first amounts, $700 for non-concession holders and $300 for concession holders, so, it is not every first dollar, it is not open ended, it does actually have that trip wire if you like, and then it is a percentage rebate. And it is not, it is not 100 per cent from the first dollar, and it was carefully designed that way, so that it is not completely open ended. It is quite a different scheme.
JOURNALIST:
But once you are in it, it is open-ended and we are seeing, you know…
TEASURER:
Per-annum, no I am sorry, it is open-ended per annum and then it trips over and you have to incur the first trip wire in the next financial year and it is not 100 per cent.
JOURNALIST:
….but within it, but within four months of its announcement you will have re-cost it and it is going to cost double the estimate of just six months ago.
TREASURER:
But, you see, the point I am making, we carefully designed it this way, it is an enormous benefit for people but it is not open-ended, it is not the supply of a free good from dollar one. And it has careful measures in there, $700 for non-concessional, $300 per annum, and then a rebate once you go over the trip line. That is why we design these things this way. You want to compare it to a Medicare Gold which allegedly, allegedly is 100 per cent from the first dollar. Allegedly. Let me tell you this, Medicare Gold will never be introduced in Australia. If Mark Latham gets elected he won't be introducing that because he can't afford that. That policy is under funded by around $2 billion, probably $2.5 billion per annum and rising because the number of people aged 75 is going to rise. That policy will not be introduced by Mark Latham if he is elected or if it were the Budget would go into deficit or there would have to be substantive tax rises to pay for it.
JOURNALIST:
…Treasurer, are you still staking your economic credibility on your claims of a $700 million hole in Labor's tax (inaudible)?
TREASURER:
No I say the hole is over $2 billion. You have got to be clear about this point. The hole is much more that $700 million, the hole is well over $2 billion. Let's be absolutely clear on this. And $1.9 billion has already been identified, the non-existent participation dividend. You see when Labor filed its policy for costing, there is a question in there that says, ‘do you expect any behavioural affects?' No. They didn't file it - $1.2 billion tax compliance which was suppose to a net $400 or $600 billion – not filed. Wrong year for the GST and then, in relation to their working tax bonus, the policy that they filed was not the policy Mark Latham released. The policy that they filed was a policy which left 10 per cent of people of working age out of any weekly benefit and everybody over aged pension. They took out well over a million people.
JOURNALIST:
But that $700 million that you were talking about last week, specifically are you still staking your economic credibility on it?
TREASURER:
Absolutely. If you put the 1 million people that they have excised in, it is not what they put in. Not what they put in. They never put in their policy for costing. What they did was they doctored their policy. So what they have put in was not their policy, we will never know the answer now because they refused to actually put it in, but I want to be entirely clear about this, the hole is well over $2 billion.
JOURNALIST:
Treasurer do you stand by all of the spending promises that your Party has made in this election, they have been on paper anyway, bigger than the Labor Party's and do you stand by those that have been economically responsible, non-inflationary and not open-ended in they way that you have criticised your opponent?
TREASURER:
Well can I say this? On paper they are not bigger than the Labor Party's – this is a very important point and I think everybody has agreed on this now – even if all of Labor's savings were to materialise, Labor is promising in net terms to spend more than the Coalition. And what I charge is that the $30 billion won't materialise. That is what I charge. So I say if they are actually promising to spend more than their net $10 billion, much, much more. And what the Coalition has actually promised in this campaign is much more modest and affordable.
JOURNALIST:
Still a lot of economists have expressed concern about the (inaudible) of spending promises on both sides including yours and the impact that will have on interest rates so, I mean, you have criticised Labor about the impact on interest rates and GDP, but there is a lot of concern from economists from your side as well.
TREASURER:
Well look, I think that the Coalition's plans and our policies, properly costed, properly allowed for, as we have shown throughout this campaign, will keep the Budget in surplus across the forward estimates. And I would only make this point; there wouldn't be too many countries in the Western world that would be forecasting Budget surpluses over the next three or four years. The Americans aren't, the Japanese aren't, the British aren't. In international terms, Australia's fiscal position is one of the strongest in the western world. And that will continue to be the case under the Coalition and under our policy. So ask the economists which, here is a good question for these economists, which countries fiscal position do they think is so much better that we ought to model ourselves on? Ask them to name the country. There is a good question for them…
JOURNALIST:
Treasurer…
TREASURER:
…and foreigners are allowed Mr Koutsoukis, foreigners are allowed into that competition.
JOURNALIST:
…Treasurer, a lot of these economist that you are disagreeing with on interest rates, a lot of them used to work for the Reserve Bank, is this a source of relief for you that they no longer work for the Reserve Bank and involved in interest rates setting since they don't understand interest rates?
TREASURER:
Look, I think you are trying to misrepresent what I said. What I said was, that properly understood, Labor's industrial relations policy will undermine productivity and lead to inflation. Properly understood, Labor's savings of $30 billion do not exist. If Mr Latham were to implement the policies that he has promised, the Australian economy would be in much worse shape than it is now. And I don't think, you know I must say that I don't think that is arguable and I am sure that if I had the benefit of a leisurely cup of tea, you would find most of these people would agree with those propositions.
JOURNALIST:
Treasurer if you are elected to the seat of Higgins on Saturday, as I am sure you will be…
TREASURER:
OK, we will get the rules clear here, one last one from you and one last one from you and that is it.
JOURNALIST:
…if you are re-elected to Higgins on Saturday, whatever the overall result are you committing to serve the full three years…
TREASURER:
As the Member for Higgins?
JOURNALIST:
…yes.
TREASURER:
Well I am running for election to be the Member for Higgins for the next three years and I have said that on numbers of occasions. Yes, very, very last.
JOURNALIST:
Productivity, how important are further industrial relations reforms to the expanded productivity hopes that the Prime Minister and yourself are voicing in the next term?
TREASURER:
I must say to you, I don't think there is a more important issue for productivity in the Australian economy than industrial relations, it is the key. It is the absolute key. Why? Because a flexible industrial relations system will drive improved work practices, improved output and improved profitability and improved productivity in every single business in this country, small and large. The abolition of Australian Workplace Agreements, the introduction of the new 0.1 per cent payroll tax, the allowing of secondary boycotts, union preference and all of the other policies of the Australian Labor Party will ossify work practices in all of those enterprises and will undermine productivity and if you undermine productivity that will undermine the potential to have real wage gains, they will also be inflationary. So I must say to you that industrial relations I believe is the absolute key to productivity in the future of the Australian economy. Thank you all very much.