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Peter Costello joins Lateline -

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(generated from captions) workers out of a job, towns and

villages are losing their main

source of income. Now to

tonight's guest, the former

Treasurer Peter Costello joins

me from Parliament House studio

earlier this evening. Peter Costello, thanks for joining

us, again. Thanks, Tony. You

have seen the Government's

latest stimulus package, had

you been in Government facing

the worst financial crisis

since the great depression,

what would you have done

differently. Well, this is poor

quality spend. We had a $10

billion spend before Christmas,

you'll recall. That was poor

quality. I am not saying that

pensioners and families didn't

recognise it and weren't glad

to have it, but it was poor

quality, it's been and gone. Essentially what the Government

is trying to do is massage the

figures quarter by quarter, it

tried to massage the December

retail figures with $10

billion, now it's massaging the

March figures, it's

poor-quality spend. A lot will

come and go, $10 billion come

and gone, did you notice a

shift in the economy - of

course not. According to

Westfield they noticed a jump

in retail figures at a time you

wouldn't expect it. Yes. They

are suggest suggesting there

was a boost stimulus boost to

spending. Yes, but the purpose

of people paying taxes is not

to boost Westfield profits,

these people's taxes, yes, they

may well have given a 2% lift

in Westfield's sales, that's

not why people pay taxes, they

may taxes to get health,

education. That's why education. That's why the

Government put a stimulus

package, spending in retail

stores, Westfield is a

bigger. A better quality spend

is where you actually lift

production, where new jobs are

created. I'm sure if I was

Westfield I'd be grateful for

the fact that my profits or

sales have gone up 2%, are they

long-term permanent jobs,

long-term investment long-term investment lasting

for 10 years, this is $10

billion, if the purpose is to

boost Westfield sales you may

as well got a couple of billion

paying it direct. The purpose

was to get long-term

investment. What would you do,

if you were in Government to stimulate jobs growth and all

the things you just

mentioned? Do you know I think

one of the biggest failures of

this Government is far from

adding to confidence, I think

this government is probably

undermined confidence in the

economy. What I would have been

talking up, which the

Government apparently is afraid

to do, was how strong the

Australian position was, we had

a $20 billion surplus, we had

no net debt, we had a good

regulatory system, the lowest

unemployment in 30 years. I

would have been saying by the

way last year that we should be

going for growth when the

Government was saying we should

be restricting spending,

raising interest rates. Tony,

let's go back 12 months ago you

know what Kevin Rudd was

saying? He was saying the

inflation genie was out of the

bottle. We needed interest rate

rises and we needed larger

surpluses. That was 12 months

ago. He was wrong. Wrong

throughout 2008. He was

actually urging on a

restrictive hontry and fiscal

policy, what -- monetary and

fiscal policy, what we should

have done last year is ensuring

we had pro-growth policies,

he's turned around done the

biggest U-turn. The biggest

U-turn in Australian economic

history. My criticism of it history. My criticism of it is

it's below quality. Malcolm

Turnbull called the U-turn, as

you referred to it, today's

fiscal stimulus package

Whitlamesque in its dimensions,

do you agree with that. Yes.

Get this in your mind, I think the commentators should be

cruel about this tomorrow.Ment

Budget will go from a $20 --

the Budget will go from a $20

billion surplus to a deficit

not because revenues have

fallen. This deficit is driven

by policy decisions. $28

billion of policy decisions.

Let's be clear about this. What

the government is saying is in

this financial year our

revenues are going to drop

about $9 billion, it is not

going to go from a surplus into

deficit because of dropping

revenues, it will go from a

surplus into a deficit surplus into a deficit because

Kevin Rudd decided to put out

$10 billion before Christmas,

he'll insulate homes, do all

sorts of things , and it's a

low quality spend. Would you

have spent money, would you

have gone deliberately into

deficit to try and buy the

Government out of a Government out of a recession

or buy the country out of a

recession. No, I would not go

deliberately into deliberately into deficit.

Kevin Rudd said he didn't go

deliberately into deficit. It's

his policy decisions that did

it. He's claiming he was forced

into it because revenues

dropped. It's false, it wasn't

the revenues, it was the policy

decision. I make this point:

in this year, 2008/2009, we'll

be back in the business of

borrowing, the Government is

now saying that our debt to GDP

will be about 5%, I think,

2010, $60 billion worth of

debt. Let me tell you, Tony,

Keating was talking about

temporary deficits in '91/'9.52.

They lasted through 2, 3, 3, 4,

5, 6. It was when we were

elected as a Coalition we got

out of a deficit. They are easy

to get in to, you can call them

temporary, if you like, it

takes a lot of action to takes a lot of action to get

out of it. I'll be interested

to see whether this Government

ever delivers, ever delivers on

the promise now, which is easy

to make, that one day we'll get

out of it. Bear in mind it out of it. Bear in mind it was

making promise s that we'll

never glow in it. I'll be

interested to see if they deliver on that deliver on that policy. I'll

pick you up on one point. You

were not, in Government physically opposed to payments

to low income people, were

you. No, we did pensioner bonuses. Advances in 2004

election, at some risk of being

accused of trying to buy votes

I might add your Government

spent $2.2 billion making cash

payments of $#,000, $200 to --

$1,000, or $200 to some

households. We were the first

Government to make cash bonuses

to carers and pensioners, the

first time we did it was first time we did it was part

of the offset for the GST. To compensate people for the

introduction of GST. We bought

a long term economic form. GST.

Lasting 50, 60, 100. That

wasn't in 2004. That's when it started. Some might say 2004

was for voters In 2004 people

were critical of the Coalition for making payments when the

Budget was, what, in surplus

by, what, 2% of GDP. As I

recall the economic

commentators said in 2004, only

2% surplus, get this in your

mind. This Government is now 2%

deficit. Not 2% surplus, 2%

deficit. That's a turnaround of

4%. We can see the ideological

ground that's appearing. Of

course, on the other side of

the ideological equation you

have a monthly essay by Kevin

Rudd on the global financial

crisis, Mr Turnbull is calling

it Orwellian. Mr Rudd blames

the crisis on capitalism,

economic fundamentalism of

neoliberalism. The thrust to

put the Liberal Party firmly in

the camp of the economic

extremists. Let's start with

that, do you accept any of the blame, philosophical blame for

the financial crisis. Well,

let's ask what has happened in

Australia? Has there been a

bank collapse? Let's ask has

there been a run on a bank in

Australia is this Tony, you

know the funny think know the funny think about

Kevin Rudd is he's out writing

this speech about how it's the

fault of - he puts the word

neoin, he wants to emphasise

the word initial, the fault of

Liberals, we had Julia Gillard

off at Davos giving a speech

simultaneously, she said,

"Australia has a AAA foreign

rating", it didn't have this

before I was Treasurer, it was

downgraded twice we had it

regraded up twice. She's, "We

have open competitive markets

backed up by world class

financial prudential system, given the global financial

crisis, I would say our system

is better than world class",

now, on the weekend Julia

Gillard is off in Davos saying,

"Our system is the best in the

world, our banks are among the

11 highest credit rated 11 highest credit rated banks

in the world, our Government

has a AAA credit rating, right,

this is the regulatory system

which I put in place, APRA,

that regulatory system, Julia

Gillard is extolling it to the

world as the best in the world,

and back here in Australia of

this miserable little essay

from Kevin Rudd saying, "The

whole global financial crisis is somehow the fault of Liberal

Party", I have to say every Party", I have to say every now

and then someone makes a claim

in politics that takes your

breath away. And boy, this was

one of them. So what about the

very notion that extreme

capitalism was to blame for

capitalism was to blame for the global financial crisis, do you

reject that? Look, I don't know

what he means by all of this

epockal, I think he said

epockal challenging event. You

tell me what that means. I'll

say this. I think the US

regulatory system was

deficient. The US regulatory

system had the Federal Reserve

regulating banks essentially

nobody regulating mortgage

originators, they didn't have

proper insurance regulate ors,

they have 50 insurance

regulators, one for each state

and nobody looked at the over

all prudential control of the

system. We recognised that was

on error in 1997. In 1997 I

established a body called the

Australian prudential

regulatory authority, APRA

APRA, we took prudential regulation away from regulation away from the

Reserve Bank. The Reserve Bank

strongly resisted that. Today they'd say it was the right

decision. We put it in APRA

saying withwe don't care what

you call your institution, you

can call it a bank, a building

society, a credit union, we are

going to have a regulator which

will have prudential will have prudential controls

across the board. On all of

those financial institutions".

When the US started going into

subprime mortgage in a big way,

it's on the record, I called it's on the record, I called in

the Australian banks, all the

chief executives and said, "We

don't want to go down this

rode, we don't want huge

exposure to subprime lending "a

Australia used to be called low

doc lending. We kept the

financial institutions out of

all of that kind of lending.

Now, the Australian banks Now, the Australian banks which

prior to that would have been

considered minnows in world

terms, are now, because of terms, are now, because of all

of the failures in the US are

amongst the 20 top banks in the

world, and they are all world, and they are all double

A rated, double A rated. In

fact, Julia Gillard boasting

about the situation. So, yes,

the United States by comparison

to Australia had a poor

regulatory system, that's been

proven. But in Australia, we

had a system that was totally

different. By the way, one we were continually

were continually recommending

to the Americans, I recommended

it to the Federal Reserve, the

US Treasury, you know, we were

holding it up at APEC meetings,

and I hope there are countries

around the world that adopt it.

Let's not say there's been a

failure in Australia. This

essay, by the way, I know it's

good for the monthly and boost

their sales, this has to be their sales, this has to be one

of the weakest essays you have

seen in a long time, it ought

to be condemned. Mr Rudd is essentially arguing with

extreme capitalism and neo-Liberalism getting

neo-Liberalism getting the

world into this, it falls to

social democracy to prevent neoliberalism, neocapitalism

for Cana billising itself. I

know some regarded the essay

was a call to return to big

Government. Is that how you see

it. That's the only way you can

see it. By the way, when Rudd

says, "This failed for 30

years", he's not only

condemning me and the Coalition

Government, he's condemning

Hawk/Keating, presumably,

because they were part of the

last 30 years, presumably he

was condemning Fraser, if you

want to go back 30 year, the

last 30 years being a failure,

who do you end up with, go back

30 years. Surprise. Surprise.

It's Golf Whitlam. Now, Mr Rudd

says social democracy has a -

has to rescue capitalism from

itself. And I suppose we are

lucky that the world has Kevin

Rudd to rescue the world

capitalist system. Maybe after

he's rescued the world

capitalist system he could move

on to solving the Middle East,

other things, which undoubtedly

he will. But let me ask a

serious question: if social

democracy is required to rescue

the world, which social

Democratic country does he hold

up as his model? Because

Britain's been under a Labor

Government for over a decade.

Britain has a huge Budget

deficit. The British would see

themselves ass a social Democratic Government. I don't

think the British record is

that good. By the way I don't

think the American record is

good. It appears he may pin

hopes on Barack Obama perhaps

advised by the Australian Government. I think the

Australian model has something

that could be held up and

recommended around the world,

the model that we have with

APRA. I agree with that. This

idea that social democracy is

the answer, let's forget about what might happen in the

future, we had a social

Democratic Government in

Britain through this period, is

Britain a great Britain a great success,

Northern Rock, Royal Bank of

Scotland. Budget deficit 8%, is

Britain the answer. We ought to

be assertive. We are

Australian, I think the

Australian model is what can be

held up around the world. Why

doesn't Rudd want to say that:

because there's a certain

ideological fervour to him, he

can't say the Australian model

was the answer, he wasn't part

of putting it in place, that

would give credit to the Coalition Government. Now, I

think at a time like this he

ought to drop his pride and ought to drop his pride and say

Julia Gillard, in all Julia Gillard, in all fairness,

Julia Gillard had the honesty

to say yes, the Australian

model was the best, he

shouldn't be ashamed of giving

credit to the Liberal Party

rather than writing appalling

essays for 'The Independent'

monthly. We are out of time, we

thank you once again for coming

in to talk to us on 'Lateline',