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Transcript of press conference: Parliament House, Canberra: 3 March 2004: National Accounts December quarter 2003; distribution of GST revenue; Mark Latham's economic policies; personal tax rates; sugar industry assistance \n\n



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TREASURER

www.treasurer.gov.au

PRESS RELEASE

NO.

TRANSCRIPT

Of

THE HON PETER COSTELLO MP

Treasurer

Press Conference Parliament House, Canberra

Wednesday, 3 March 2004

12.00 noon

E & OE

SUBJECTS: National Accounts December Quarter 2003; Distribution of GST Revenue; Mark Latham’s Economic Policies; Personal Tax Rates; Sugar Industry Assistance.

TREASURER:

The National Accounts, which show GDP growth of 1.4 per cent in the December quarter, are the strongest for four years. Australia’s quarterly growth in December was stronger than any other quarterly figure back to 1999.

And it was principally led by strong consumer demand, strong business investment and a very welcome recovery in relation to farm production. Farm production increased 13.3 per cent in the December quarter, building on a 14 per cent increase in the September quarter. That is, farmers incomes are starting to rebuild as we come out of the worst drought in a hundred years. Now this is led principally by grains, because herds have not rebuilt. So it is strong grain production and strong incomes coming back in that part of the farming sector. It doesn’t mean that every farmer is now out of drought, obviously, but it is a very welcome return both in terms of production and agricultural incomes.

Household consumption increased 1.6 per cent in the December quarter. Household consumption is supported by consumer confidence which is at near record levels in Australia, as you would expect, with strong employment growth and unemployment rates at now near-twenty year lows.

But private business investment was also very strong, growing 3.5 per cent in the December quarter and 10 per cent over the year. And in particular, new engineering construction has been very strong

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in Australia, increasing 22.5 per cent over the year. And you think of some of the big projects that are going on in Australia at the moment - the East-West tunnel in Sydney, the Western Sydney Orbital, Spencer Street redevelopment in Melbourne, developments in Gladstone, there is a lot of new engineering construction and a lot of construction going on in the mining industry. I think you will find that the production in mining services was very, very strong. Mining is mostly an export industry as you know, so that is affecting the mining industry but demand, particularly coming out of China at the moment, is very strong indeed. And that means that notwithstanding a rising exchange rate the Australian mining industry has managed to boost its contribution.

In addition to that, the share of profits again increased, and the profit share of the economy at 25.6 per cent of total factor income is now the highest ever recorded in Australian history. That is a measure of the profitability of Australian companies in the current environment.

Looking ahead, because this is the December quarter of last year, we are now mostly through the March quarter of 2004, we see the international situation supporting the Australian economy in the sense that the United States is now coming back from recession. Europe is still weak with both France and Germany having been in recession and Japan is showing signs of some growth. East Asia will be positive for Australia’s mining industries in particular. One of the difficulties for us will be the exchange rate with the high value of the Australian dollar, that is making life harder for our exporters. And we saw a net detraction from economic growth, 0.5 of a percentage point, in relation to these figures today. But the emergence from the drought is working in Australia’s favour.

An annual growth rate of 4 per cent puts us again at the top of the league of the developed economies of the world - faster than the G-7, faster than the OECD. Having come through that difficult drought, the prospects for Australia are for a strong continuing economy in the midst of a global recovery.

JOURNALIST:

Mr Costello given that strong continuing economy do you think that there may be cause to raise interest rates throughout the year?

TREASURER:

Well, interest rates were raised last year on two occasions. That was a response to the fact that the global recovery had started. There is some evidence that this has affected housing finance and housing approvals, but it has not interrupted the strength of the Australian economy, which I would have thought is a good thing.

JOURNALIST:

Is there still a need to cut taxes in your view given that the economy is performing quite well?

TREASURER:

Well, the principle which I believe which we should apply in relation to taxation is this. If our debt is low, and it now is, we have repaid over $60 billion of the Labor debt, if our Budget is balanced after paying for defence, security, health, aged pensions and the like, then we should try and work at lowering the tax burden in Australia. Whether we will be able to do that, with the pressures that are coming on the Budget in the lead-up to the May Budget, we will see in May.

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JOURNALIST:

Can we just talk about those pressures, Mr Costello, we have now got the December quarter GDP numbers in and a very good idea of how the March quarter is shaping up, so what are the priorities going to be for the Budget and what are the pressures that you see on it?

TREASURER:

Well, pressures that will be coming on the Budget of course is Senate oppositionism. The Senate is still defeating $1.25 billion in the pharmaceutical area of savings. The Senate has been holding up our health package. The biggest block on good economic management in this country is still the Labor Party. And the pressures that will be coming on the Budget come firstly out of Senate oppositionism. Secondly, there will be defence pressures because we still have commitments in the Gulf, in Iraq, in East Timor, in the Solomon Islands and elsewhere, and the war against terror goes on. And that will also involve national security matters. They will be the pressures that we will be facing up to in the Budget.

JOURNALIST:

Mr Costello, …(inaudible)…political pressures are you worried that the Government is starting to throw a lot of money about even before you get seriously into the budget process? And do you have any general warnings for your colleagues who are seeking funds?

TREASURER:

Well to my colleagues who are seeking funds in the way they always have Michelle, I would give them the message that strong economic policy is what has got our unemployment down to near twenty year lows. It has got the home mortgage interest rate down around seven per cent when it was 10½ per cent when we were elected. It has delivered us six surplus budgets, helped us weather the Asian financial crisis, a US recession and the worst drought in 100 years. And it is strong economic policy that kept Australia there during all of those things and all of those threats. Now there are some people that seem to think that it’s been a good time in terms of global conditions. Let me tell you, we had an Asian financial collapse, we had a US recession, we had SARS, a war in Iraq and then we had the worst drought in 100 years and the fact that the Australian economy continued to grow through that and that at the end of that we’ve got unemployment at 20 year lows, is a testament to economic policy.

JOURNALIST:

(inaudible)

TREASURER:

Sorry, Mr Bongiorno.

JOURNALIST:

Nonetheless, after the last spending spree before the election the Budget did go into deficit. Would it not be your aim this time to try and avoid that?

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TREASURER:

It is my aim to keep the budget in surplus, yes it is. Absolutely.

JOURNALIST:

That would be a constraint therefore on the amount of pork barrelling that the Prime Minister might be…

TREASURER:

It will be a constraint on expenditures which are not necessary and are not consistent with good policy.

JOURNALIST:

Would it be prudent economic management to give the sugar industry up to $600 million, which they are seeking and was it prudent economic management, Treasurer, to give the veterans community $267 million, which is nearly three times what Cabinet originally agreed to?

TREASURER:

Well in relation to the sugar industry what the Commonwealth has decided is to provide income support to the farmers for 12 months. And obviously that is not of the dimension of hundreds of millions of dollars.

JOURNALIST:

But that’s only a down payment.

TREASURER:

There are 6700 sugar cane growers in Australia. It’s not a very, very large group of people and income support for 6700 people is quite manageable.

JOURNALIST:

So they should expect something very modest in the future payments?

TREASURER:

They should expect income support Michelle which they are being provided with. You’re always on to that next question.

JOURNALIST:

But you will be doing more for them won’t you, Mr Costello?

TREASURER:

Oh yes, we’ve said that what we’ll be looking at is not just income support, but obviously there has to be a package which addresses the problems of the industry. What is the problem of the industry? The product they are making on world prices does not give them an adequate return. Now, we can’t go on producing something that does not give you a return. And this will involve a lot of

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restructuring I think and I think it’s important that the money that is involved is used to restructure the industry in such a way as to get change.

JOURNALIST:

Does that mean restructuring to eventually see the sugar industry become much smaller or restructuring it to make it go into other areas of production?

TREASURER:

All of that is on the table. Whether there are alternative uses, whether there can be, for some of the farmers, better packages to ease them, if they want to, out of the industry, all of those things are on the table. That will all be discussed.

JOURNALIST:

Can consumers expect the good times to last given that household debt is at record levels?

TREASURER:

Well consumer confidence is very strong and you can see that in the surveys and the measures, you can see that in the consumption figures. And it’s also supported by rising wealth. That we’ve had in this country over the last eight years a massive increase in wealth, a lot of it locked up in people’s property values. But Australians wealth has increased significantly, and that’s given consumers a feeling of optimism. Many of them have actually borrowed against that rise in wealth. The only thing I would say to people is, and I say it all the time, I’d guess you’d expect it of a Treasurer, don’t over commit yourself, bear in mind that whilst property prices rise, there can be corrections in the market and don’t over extend yourself. You would expect me to give that prudent lesson.

JOURNALIST:

… State finances, is Bob Carr right in saying that New South Wales gets rolled and does he need to be compensated for having a crowded city?

TREASURER:

The allocation of money is between the States, between the States. It is done by an independent Commonwealth Grants Commission. Not done by the Commonwealth Government, it’s not done by me, it’s not done by Mr Howard, it is done by an independent Commission which has been doing this since 1933. Now, I hear Mr Carr and others go out and try and spin the line that this is some gigantic conspiracy. This is done by an independent Commission, which has been in place, what, only for the last 70 years. And New South Wales, if it has a case to make, can make it to that Commission, but it is lacking in substance and being loose with the truth to suggest that in someway this is done by the Prime Minister or the Treasurer or the Commonwealth Government. We have no control over the process whatsoever. I want to make that absolutely clear.

The second point I want to make, is this is not an argument between the Commonwealth and the States. This is an argument between the States. You know what it is, it’s an argument between six Labor States and two Labor Territories about who can get the most out of the GST. A financing measure for the States, which they didn’t lift a finger to put in place and now profit from enormously. The GST is now delivering to Sydney and Melbourne and Brisbane and Adelaide and Perth and Hobart, something like $34 billion. And they’re arguing as to who gets what share of that $34 billion. A tax which they never put in place and they opposed, but, boy, they like living off it, boy they like living off it. The arrangements that we put in place have been enormously beneficial

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for the State Premiers and it gives them a growth revenue. And I make this point in relation to the States, as those revenues grow, and every last dollar of GST goes to the States, we will also be asking the States to abide by their commitments, which is to reduce State taxes according to the arrangements that we’ve put in place.

JOURNALIST:

Mr Costello, if you believe today’s opinion polls, Mr Costello, the Government doesn’t seem to be getting any credit for the strength of the economy. Why do you think that might be so?

TREASURER:

Well I think that people do believe that the economic management of Australia has been strong over the last eight years, and I think they do believe that this has been reflected in more jobs and consumer confidence is high. I don’t believe that the polls show the reverse, actually, I don’t believe that at all. When you look at the polls, who’s best to manage the economy, I think it shows it very, very clearly that the public has a clear view on who’s best to manage the economy.

JOURNALIST:

So is it just that Mark Latham’s a more popular leader?

TREASURER:

Well he’s enjoying a honeymoon, there’s no doubt about that. And the test for Mark Latham is going to come when he has to put down a policy. That is where, let me tell you, Mark Latham is policy weak. I know, I know that he is policy weak, because I probably know more about his policies than anybody else, more than he does certainly, because I used to read them when he was the Shadow Treasurer. And as I said the other day, you know, it has got all the depth of somebody who gets on the internet, gets on to Google and types in economic policy. And when the Japanese model was up, he was a supporter of the Japanese model. And when the Asian model was up, he was a supporter of the Asian model. And then he went into the new way of economics, then he went into communitarianism, then he went into third way economics, then he went into the progressive expenditure tax. He wrote a book on the progressive expenditure tax. I may be the only living person that read it, and I found out that it had marginal tax rates of 400 per cent. And when I said, well you know, he has put forward the progressive expenditure tax of 400 per cent, he said, ‘oh that wasn’t me, that was just in my book - I had down-loaded that from somebody else.’ Now, you can’t govern by Google.

JOURNALIST:

So are there any…

TREASURER:

You know, you have got to hold an idea for longer than it takes to get the search engine back with a policy. He is policy weak, I’ll tell you.

JOURNALIST:

…so are there any attractions Treasurer, in cutting the top personal tax rates to 30 cents, to bring it in line with the company rate?

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TREASURER:

Do you think Mr Latham is going to announce that as a policy do you? He commissioned Access Economics, which is working for the Labor Party in this election, to look at that policy. No sooner does the letter appear he said, ‘oh no, let’s not, we are not following that anymore.’ You see, you know why Laura? That was a letter that was written five months ago. You can’t hold him to a policy that was five hours ago. So we have had all of these, look, nobody will be happier to debate that issue with him if it ever emerges.

JOURNALIST:

Do you think it is a good idea though, top personal rate at 30 per cent?

TREASURER:

Well, do I think that it would be feasible in the Australian economic (inaudible) climate?

JOURNALIST:

Treasurer…

TREASURER:

Mark Latham, make my day.

JOURNALIST:

Will the rate (inaudible) though?

TREASURER:

Michelle, we have dramatically cut company tax in this country. When we came to office the company tax rate was 36 per cent, today it is 30 per cent, it operates on full dividend imputation. Business has never been stronger. We took taxes off exports. Do people realise, we took taxes off exports? How would we be out there at the moment in this world where there was this export weight on business? All of that has been reformed and it has made Australia one of the stronger economies. Don’t forget, when we were doing all of this and we were being opposed by the Labor Party, they said this would destroy the Australian economy, throw us into recession and everything else. Here we are, 2004, economy is still growing.

JOURNALIST:

But you were the person who said Treasurer, that the people who missed out in tax reform were the people on the top personal tax rate, because of reforms in the Senate.

TREASURER:

No, no, people on that rate who didn’t get the benefit of an increased threshold. That was our tax plan, was to cut the top rate in at an increased threshold, that is at $75,000. It was to adjust the rate, it was to push the threshold out at $75,000. It was our tax plan, and you know, I have said all along, that if you are an aspirational voter on $60,000 or $62,500, you don’t regard yourself as rich.

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JOURNALIST:

So the threshold is still the issue, rather than the…

TREASURER:

For a day or two, Mr Latham agreed with that proposition.

JOURNALIST:

Mr Costello…

TREASURER:

One can’t tell.

JOURNALIST:

If this is your (inaudible) try to lower that top personal rate (inaudible).

TREASURER:

No, I had a proposal which was to increase the threshold. We put it out before an election, we maintained it through an election, we won an election, we put it into the Parliament, the Labor Party opposed it, on the grounds that it was a tax cut for the rich. And then Mr Latham, when he was Shadow Treasurer supported it, and then he said it was only an idea and then he said…well, who knows what he said.

JOURNALIST:

(inaudible) Treasurer you are happy with…

TREASURER:

My head spins faster than his does when I try and follow his twists and turns.

JOURNALIST:

…you are happy with (inaudible) as the top rate?

TREASURER:

Any other questions?

JOURNALIST:

Mr Howard (inaudible) yesterday declared Mr Latham’s honeymoon over, how long do you expect this second honeymoon to last.

TREASURER:

Have a good day, thanks.