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Meet The Press -

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MEET THE PRESS

INTERVIEW WITH TREASURER PETER COSTELLO

DISCUSSION ABOUT FEDERAL ELECTION, INTEREST RATES, PETER KING, FOREIGN DEBT, TAX CUTS, MIKE
SCRAFTON, THE GREENS.

5th September 2004

MEET THE PRESS PRESENTER PAUL BONGIORNO: Hello and welcome to Meet The Press. Howard and Costello
facing together the challenge of winning the election. Today, the Treasurer makes the case. But
first, what the nation's press is reporting this Sunday, September 5. The Melbourne 'Herald Sun
Sunday' leads with "Outrage" as the death toll reaches 322 in the Russian school siege. Relatives
have been allowed into the gymnasium where much of the bloodshed took place. At least 700 were
wounded in the battle between commandos and terrorists. President Putin has accepted that Russia's
security forces share some of the blame for the way they handled the crisis. In Brisbane, the
'Sunday Mail' reports "Howard holds lead in marginals". A Newspoll of 12 marginal seats around the
country Labor must take to win Government has the coalition holding its ground 52% to 48%, after
preferences. The Melbourne 'Sunday Age' reports "Now doctors condemn war". 56 of the nation's most
eminent doctors accuse the Government of taking Australia to war in Iraq on false and misleading
grounds. They call on the post-election Government to redirect Australia's military involvement to
purely civilian reconstruction. And the Sydney 'Sunday Telegraph' reports Liberal polling suggests
disendorsed MP Peter King looks set to defeat Malcolm Turnbull in their hitherto blue-ribbon seat
of Wentworth. Last week, the Prime Minister nominated Peter Costello as Australia's greatest
treasurer. What convinced Mr Howard that his Liberal deputy deserved the gong was Mr Costello's
better performance on interest rates than his own as treasurer. Welcome back, Treasurer, and
congratulations!

TREASURER PETER COSTELLO: Thanks very much, good to be with you, and happy Father's Day.

PAUL BONGIORNO: It's mutual. Isn't the election campaign after week one perhaps shaping a bit like
the Essendon-Melbourne game yesterday? Do you think that the coalition is in front, even if it's
only by 5 points?

PETER COSTELLO: The good thing about that game yesterday was that the Demons were defeated. Let's
hope the election campaign is shaping up that way, Paul.

PAUL BONGIORNO: At the end of week one, are you growing in confidence that the Government will hang
on?

PETER COSTELLO: Look, it's a very tight election, and with five weeks to go, anyone who thinks they
can predict the outcome now is fooling themselves. I think two significant things happened this
week. One is that the Government showed that the economy is going to be the key issue of the
campaign and the distractions were peeled off. The second is I thought Mr Latham was weak on
policy. He had a payroll tax which he didn't understand, and then he had a regional airport policy
which he didn't understand, and I've watched him in the Parliament for some time, particularly when
he was my opposite number as Shadow Treasurer, and I don't think he does the policy work, and I
thought that came through this week.

PAUL BONGIORNO: Well, interest rates were the big battleground of the campaign's first week, as you
say. Back in 1995, you and the Prime Minister linked Australia's foreign debt to people's
mortgages. Here's what John Howard said at the launch of the famous debt truck.

PRIME MINISTER JOHN HOWARD (PREVIOUS MEDIA APPEARANCE): If it weren't for the level of foreign
debt, interest rates in this country would be much lower, and every Australian today who owes money
on his or her home is paying a higher interest rate than would otherwise be the case because of the
size of our foreign debt.

PAUL BONGIORNO: Does it follow that foreign debt, now two times bigger, means that mortgage rates
are in fact higher than they otherwise should be?

PETER COSTELLO: No, Paul, because our mortgage interest rates are around 7%. These are near
historical lows. They've been low now and stable for, really, the period of our Government. When
our Government was elected, they were about 10.5% from memory, and we brought them down and we've
kept them down. Now, what's happened since, of course - and this is a very important point - is
that the Commonwealth Government, under our management, has run seven surplus budgets and we have
now repaid $70 billion of Commonwealth debt. Let me give you one figure...

PAUL BONGIORNO: Could I just pick you up on that point? No-one can really dispute the fact that you
have reduced Commonwealth debt, but there is no real distinction in the foreign debt figures - for
example, the cost for Australian companies or Australian companies or banks to raise capital is in
fact affected by the level of our foreign debt.

PETER COSTELLO: No, there are two big distinctions. If the Government is not borrowing - and let me
give you a figure. This Government has not borrowed in net terms since it was elected. That is, we
haven't borrowed anything. So such borrowings as there are overseas are all for the private sector.
The Government is not borrowing any money. The second point I want to make, Paul, because it's
really important, let's get this on the table - since our Government was elected, Australia's
credit rating has been revised upwards twice. We have now recovered the triple A credit rating.
It's a credit rating which determines rates, because that determines the risk of a borrowing. The
fact our credit rating has now returned to triple A means that foreign debt is now not affecting
our credit rating, nor affecting our interest rates.

PAUL BONGIORNO: Well, back in 1995, you used to say Labor's foreign debt meant $10,000 for every
man, woman and child in the country. Doesn't the figure now mean $19,481 for every man, woman and
child in the country?

PETER COSTELLO: And back then, of course, we had been downgraded in credit terms, not once, but
twice under Labor. We had lost the triple A credit rating. Now we've recovered it. Now we've repaid
$70 billion of debt, and now the Government is making no contribution whatsoever to borrowing.
These are very big turnarounds. I want to make one last point here, because this is really
important. When Mr Latham signed his piece of cardboard this week to say he was going to be a good
economic manager, one of his pledges was to reduce Commonwealth debt to GDP. So he essentially
accepts our case that it's Commonwealth debt to GDP that impacts on interest rates. That's what
we've reduced by $70 billion. Now, the point about Mr Latham's promise this week - we've taken an
excavator and moved that mound of Commonwealth debt, we've got it down by $70 billion. He came
along this week with a sand bucket and sand spade and said if he ever got elected, he would like to
make his contribution, too.

PAUL BONGIORNO: Treasurer, It's time for a break. When we return with the panel, we ask about the
Government's secret tax plans.

PAUL BONGIORNO: Welcome back. You're on Meet The Press with Treasurer Peter Costello. Welcome to
the panel, Michelle Grattan, the 'Age' and Steve Lewis, the 'Australian'. We're still to see the
colour of Mark Latham's money when it comes to his tax policies, but on Friday the Prime Minister
revealed the Government, too, was hiding something from the electorate.

JOHN HOWARD (PREVIOUS MEDIA APPEARANCE): We don't have a capacity for an across-the-board tax cut,
no, we don't.

RADIO HOST: What about a targeted tax cut at lower levels?

JOHN HOWARD: Well, I think it's better that we just wait and see what is unveiled.

RADIO HOST: By Labor or you?

JOHN HOWARD: By us!

MICHELLE GRATTAN, THE 'AGE': Well, Mr Costello, it looks as though you do have something in the bag
to help people further on tax?

PETER COSTELLO: Look, we're always looking at ways to improve the operation of the taxation system,
and if we can do that, we'll do it. But as the Prime Minister said, we don't believe there's
capacity for general tax cuts, and we're certainly not holding out the prospect of general tax
cuts. We would be very interested to see Mr Latham's policy this week, which is going to be, he
says, the mother of all tax cuts. I would be very interested to know where the money comes from.

MICHELLE GRATTAN: But people under $52,000 whom you ignored in the Budget can perhaps be a bit
hopeful that if the coalition is re-elected, they, too, will get something?

PETER COSTELLO: Well, I want to say something about this, because people earning $50,000 and below
have had a tax cut of around 20% since 2000. Secondly, most of those people who are families would
be receiving $600 per child, including another payment starting in September. And thirdly, in this
budget, we introduced a new co-contribution superannuation scheme, where the Government will pay
$1.50 for the dollar that you have put into your own superannuation, which is the most generous
co-contribution scheme we've ever had in Australia. So these are very significant benefits for
people in those income ranges.

MICHELLE GRATTAN: Nevertheless, there are a lot who missed out totally who are not families or
don't fall into the superannuation category.

PETER COSTELLO: Well, most would fall into the superannuation category. Most of those who are being
pressed in that area and have children would be receiving assistance, and in addition, as I said,
this was the third tranche of tax cuts which, taken together, reduce income taxes by around 20%.

STEVE LEWIS, THE 'AUSTRALIAN': Mr Costello, while we're talking economic management, at the last
election, we saw the Coalition embark on a spending spree which sent the budget into deficit the
following year, 2002. Are we looking at a repeat performance this time around?

PETER COSTELLO: No, we are budgeting for a surplus in this financial year, that's 2004-05. Very
confident that if we are elected, that will be the outcome.

STEVE LEWIS: So that's a rolled gold guarantee you won't send the budget into deficit?

PETER COSTELLO: That it will be a surplus if the coalition is elected. I can't speak if Mr Latham
is elected, of course, and it would be the seventh surplus brought down by this Government, seventh
surplus whilst I've been Treasurer, and Steve, you might go back through the Commonwealth records.
There wouldn't be too many other governments or treasurers that have brought down seven surpluses.

PAUL BONGIORNO: What do you consider to be the minimum level of budget surplus to maintain downward
pressure on interest rates?

PETER COSTELLO: Well, I think in the budget, we forecast $2.5 billion. It would be of that order.

PAUL BONGIORNO: Nothing below that?

PETER COSTELLO: Nothing below, that no. In fact, I would think, if you could, you would try and do
better than that. But certainly nothing below that.

STEVE LEWIS: It must be pretty hard during an election campaign where there's a very strong demand
from your colleagues for spending. We've already seen quite a bit of spending since the May budget.
You're confident you can deliver a similar, if not better performance next year?

PETER COSTELLO: Yes, I'm confident we can keep the budget in surplus, yes, I am. And yeah, it is
hard. You have colleagues that do want to spend money, all the time - all of them.

MICHELLE GRATTAN: And a boss perhaps?

PETER COSTELLO: Well, that's the role of the Treasurer, Michelle, to be able to withstand those
pressures.

MICHELLE GRATTAN: Even from the boss?

PETER COSTELLO: This is why... From everybody, Michelle! This is why I say, if Mark Latham thinks,
"Oh, the only thing there is to running a surplus budget is signing a piece of cardboard, we sign
this cardboard and that means you can trust us on surplus budget" - as I said yesterday, how silly
am I? I actually thought to produce surplus budgets you had to stand up to spending colleagues, you
had to work at reforming the taxation system, you had to work at reforming productivity and all of
those sorts of things. It's not as easy as signing a piece of cardboard. He would find that he has
no real understanding of the difficulties of this, and his signature on a piece of cardboard should
be taken as the stunt that it was.

MICHELLE GRATTAN: But you have already, I presume, had a peek at the figures that will come out in
the next few days? Those figures will provide a bonanza for both sides of politics to spend, won't
they?

PETER COSTELLO: Well, I would be surprised if they did.

PAUL BONGIORNO: You don't expect a bigger budget surplus in the PEEFO, as they call it?

PETER COSTELLO: These are not my figures.

MICHELLE GRATTAN: Have you seen them?

PETER COSTELLO: These will be the figures of the Secretary of the Treasury and the Secretary of the
Finance Department. No, I am not consulted on them. They will be put out by those secretaries under
a law which I put in place to ensure that during an election campaign everybody would have agreed
figures. I have watched the Budget carefully. I think I have a pretty fair idea of what's likely to
be in it, but I don't know what will be in it - that's a matter for the secretaries of Treasury and
Finance.

MICHELLE GRATTAN: Can I ask you about the scare campaign, because the Government in the first week
of the election campaign was running very hard on scares, on everything from interest rates to
terrorism. Haven't you diminished the value over the years of these sorts of campaigns? I mean,
they go right back, for example, even to 1980, where the Coalition claimed Labor would bring in a
wealth tax. Are we going to see that sort of allegation before the end of this campaign?

PETER COSTELLO: Well, Labor did bring in a wealth tax. They brought in a capital gains tax.

MICHELLE GRATTAN: But only some years later.

PETER COSTELLO: Yes, they did! And now, let me make this point - I don't think there's any
realistic doubt that if you've got an inexperienced Mark Latham with no real understanding of
economic policy, when you have the interest groups that hang around the Labor Party that will be
demanding increased expenditure, when he has no real understanding of how to put together a budget,
I don't think there's any real doubt that Labor will not be able to maintain a disciplined budget.
I don't think there's any real doubt that, as a consequence, interest rates will go up. Do I think
that's a scare campaign? No, I think it's realism. I have to say to you, I am absolutely sure
that's what would happen.

STEVE LEWIS: A couple of weeks ago you suggested that Australia would have to bring in more skilled
workers to meet the shortage in skills, to increase the immigration levels. Do you have a level in
mind? Aren't you advocating a population policy?

PETER COSTELLO: Well, I made the point that there is evidence that we have skill shortages in
Australia, I think across a whole lot of trades - boilermaking, electricians, a whole lot of these
trades. I would actually like to see young Australians take these trades up much more and I think
we ought to work at doing that. But I also pointed out, Steve, that with the population ageing ,
with the number of people in retirement growing and the number of people in the work force
remaining constant, it may well be in 10 or 20 or 30 years that these shortages actually grow, and
so I was saying long term - and I'm talking 10, 20, 30, 40 years, the time we put the
intergenerational report out over - this is one of the things that Australia will have to look at.
We are actually increasing skilled migration and we have been doing that for a number of years and
this is one of the reasons why.

PAUL BONGIORNO: Time for a break. When we return, we ask, what are John Howard's and the
Government's plans for the next 10 years? And in the cartoon of the week, Nicholson in the
'Australian' picks up on the claim that Liberal Senator George Brandis called John Howard a lying
rodent. The John Howard mouse tells the media pack, "My advice is I'm not a lying rodent."

PAUL BONGIORNO: You're with Meet the Press. On Friday, former senior Liberal and MP Peter King gave
this assessment of the political landscape as he announced he was running as an independent.

MP PETER KING (PREVIOUS MEDIA APPEARANCE): What we need is not reactive politics in Australia today
but pro-active politics. Our young people are disillusioned with the political process, our aged
people feel neglected and ignored and middle Australia feels it's being overlooked, and those with
human rights concerns feel as if they're being disregarded.

STEVE LEWIS: Well, Mr Costello, Mr King, a former State President of the Liberal Party, paints a
fairly damning picture, if you like, of people's concern with the political process. Is this a
legacy of 8.5 years of Coalition government at a federal level?

PETER COSTELLO: I don't think so, Steve. Peter King is running as an independent. He is seeking to
defeat the Liberal candidate in Wentworth, so he has to distinguish himself from the Liberal
candidate, and you would expect him, in announcing his bid, to go out and have a critique of the
Liberal Party. But I think if you go through Government's record in relation to middle Australia,
in relation to the aged, it's quite a strong one, and I know Peter, I've worked with him, I haven't
heard him be intensely critical of the things we've been doing up until yesterday.

STEVE LEWIS: Nevertheless, the central issue for your campaign is trust. We've seen polls
suggesting 60% of voters don't believe the Prime Minister told the truth on the children overboard
affair. We've seen a very eminent group of doctors today suggest that the Prime Minister and the
Government misled the people on Iraq. This is a fairly damning indictment of the Government, isn't
it, going into this campaign?

PETER COSTELLO: Well, the Government's got its critics, and they're entitled to criticise
Government policy, but that doesn't mean it's right. You know, you've got those doctors that are
making their statement. They're entitled to do so. But I actually believe that Iraq will be a
better place for the downfall of a tyrant like Saddam Hussein. I think more people's lives will be
saved, I think there will be less torture, I think people will get better schooling, I think Kurds
will be safer now they're not at risk of chemical weapons. The doctors are entitled to their view,
but I don't think it's right. And I think objectively there are grounds to think things will be
much better in Iraq.

MICHELLE GRATTAN: But why do you think generally there has been this sort of crisis of confidence
and why are people so distrustful these days of the Government, not just on Iraq but on other
issues, too, and does it matter? Does it matter? How important is it?

PETER COSTELLO: Well, the political opponents of the Government, particularly the Opposition, have
done everything they can to build this up as an issue. That's their job, to try to undermine
support for the Government.

MICHELLE GRATTAN: But they can only do that, Mr Costello, if there's some basis that allows them to
do it. They can't conjure it up out of thin air.

PETER COSTELLO: We had the Scrafton incident this week and I thought at the end of the week, there
was some very severe doubts cast on Mr Scrafton's account. That's what I took out of the end of the
week. Now. .

MICHELLE GRATTAN: Why would why Mr Scrafton be lying?

PETER COSTELLO: I said there were some very grave doubts.

MICHELLE GRATTAN: But that's saying he is lying. Why would he be lying?

PETER COSTELLO: No, no, no, he had talked about three telephone conversations. Plainly there
weren't three telephone conversations. He had talked about this second conversation which had gone
through things at great depth. Plainly, that hadn't happened. And I think by the end of the week -
he is entitled to his view , he is entitled to put his view, but I think at the end of the week,
there were some very grave doubts about his account.

PAUL BONGIORNO: What do those polls say about perhaps morality in Australia? 60% in one poll and
about 59% in another believe John Howard actually lied, and yet, by a margin of 10% in one poll and
I think 12% in another, they prefer him as Prime Minister!

PETER COSTELLO: Well, because I think at the end of the day, people want a Government that will
manage an economy in such a way as they can keep their job, keep their business and keep their
mortgage.

PAUL BONGIORNO: It doesn't matter if we're lied to?

PETER COSTELLO: Well, I think people want a Government that can keep them in work, keep a roof over
their head, and keep their businesses profitable. And why would they prefer him as Prime Minister?
Well, what possible grounds would you have to trust Mark Latham with your house, with your job or
your business?

MICHELLE GRATTAN: They obviously do prefer him as Prime Minister at moment on the figures. Do you
think that they can trust him to stay for the full three years?

PETER COSTELLO: Well, you know, I think the track record of John Howard and the Government and the
colleagues speaks for itself.

MICHELLE GRATTAN: So you think they can trust him to stay for the full three years?

PETER COSTELLO: I think they can trust the Government to continue doing the important things.

MICHELLE GRATTAN: That's a different question. That's a different question, Mr Costello.

STEVE LEWIS: You have ruled out a challenge. Are you resigned to serving another term as Treasurer
and not challenging? You expect the Prime Minister to serve out another three years as Prime
Minister if indeed the Government is re-elected, as the most recent polls suggest?

PETER COSTELLO: Well, he has made his position entirely clear and I will make my position entirely
clear. I'm running to be re-elected in my seat, and if the Government is re-elected, I would expect
to continue to serve as Treasurer. That's what I'm running for, and I'm running for good economic
management to continue in this country.

PAUL BONGIORNO: Treasurer, we're coming to the end of the program. Just with the Greens, you have
warned of the dangers of a Green balance of power in the Senate. Is the Liberal Party inclined to
preference the Greens ahead of Labor?

PETER COSTELLO: That would be very unusual, because Labor is the alternative Government, and as a
consequence of that, we invariably preference them last, but seeing as you asked the question, I
think it's very important that people think carefully about the Greens. There's a soft side to the
Greens which they try to sell to you about forests, but there's a very hard edge to the Greens,
too. There's a hard edge that wants to introduce death duties. There's a hard edge that wants to
look at legalising drugs like ecstasy.

PAUL BONGIORNO: That's why the New South Wales Liberals put them last?

PETER COSTELLO: There's a very hard edge in relation to higher company taxes.

PAUL BONGIORNO: OK, We're right out of time.

PETER COSTELLO: I would say to people, look very, very carefully at the whole package in relation
to the Greens.

PAUL BONGIORNO: Thank you very much for joining us today, Treasurer Peter Costello, and thanks to
our panel, Michelle Grattan of the 'Age' and Steve Lewis of the 'Australian'. Until next week, it's
goodbye from Meet The Press.