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Treasurer discusses mid year review, debt, fuel and unemployment.



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Transcript No. 2000/104 TRANSCRIPT of THE HON PETER COSTELLO MP

Treasurer

Interview with Mark Willacy, AM Thursday, 16 November 2000 8.00 am

SUBJECTS: Mid Year Review, Debt, Fuel, Unemployment.

WILLACY:

Mr Costello, you must be pretty pleased with a bulging surplus and people on your side of the political fence must be pretty happy with their Treasurer at the moment.

TREASURER:

Well, the good news is that the Australian economy has been strong. It’s been strong because we’ve had a low interest rate regime in place since we were elected. We are paying our own way. We are repaying Labor debt. And at the end of this year we will have paid back $50 billion of Labor’s $80 billion debt. So, you know, we are 5/8 of the way of reversing the damage that Keating and Labor did to the Commonwealth accounts. And what that means is that we have got more people in work than ever before. More Australians than ever before are in work. Unemployment is at a decade low and if we can continue a strong economy it can fall further.

WILLACY:

Well it is critical for interest rates as well to retire debt. How critical is it after this Mid Year Review for you to retire debt?

TREASURER:

It is very important that we keep a strong economic policy. You can get a home mortgage interest rate in Australia round about 7 per cent. I can remember the days Mark, when it was 17 ½. That’s what it was when the Labor Party was at its height. Now there are a lot of factors in the world that are making life pretty difficult for us at the moment. There’s a lot of volatility but if we run a strong economic policy and we can keep those interest rates low, the economy can keep ticking over and more jobs can be created. We don’t want to give up the game now.

WILLACY:

Well you’ve just been over to New York, you’re in touch with local market economists, how much are they telling you that you need to retire in terms of that remaining debt?

TREASURER:

Well, one of the strengths of the Australian economy, people think, is you’ve got a Government which is directing itself to strong economic management. If, if the view got around that we’d given up on strong economic management or that the "old team" was going to come back in, that could be very damaging. It’s just, it’s just important that we make every post a winner. I’ve made this point before, in world terms, Australia is a pretty small country. 20 million people and we just have to run faster to keep up. We have to be the best at everything we do. We have to have the best industrial relations, the best tax policy, the best Budget policy in order to keep our interest rates low.

WILLACY:

But you must have a figure in your mind in terms of this debt retirement that will come out of this Mid Year Economic Review figure.

TREASURER:

Oh, well, my plan is basically to pay off Labor’s $80 billion of debt. Labor’s last five Budgets…

WILLACY:

So that’s your priority?

TREASURER:

…hocked us $80 billion into debt. We’ve now paid off $50 billion. Over the next couple of years we could pay off the full $80 billion. We’d be back where, where we were prior to the recession and that is a very worthwhile goal. What benefit does it deliver? It delivers this benefit - when I became the Treasurer, I had to raise $9,000 millions to pay the interest bill. If we retire the debt that’s $9,000 millions every year that we don’t require.

WILLACY:

Well given you want to do that within a couple of years, should your backbenchers now put their spending proposals back in their backpockets?

TREASURER:

Well, the Government’s got a delicate balancing act. We want a strong fiscal position, we want low taxes and we cut taxes on 1 July and we want useful decent investment. One of the decent investments that we are going to do, we have already announced, is in rural roads. Another that we’re going to give some more detail on next month is we are going to upgrade Australia’s defence. We’re going to have a very significant upgrade in Australia’s defence. We think that the events of East Timor showed the need for that. So we’ve got high priority investments - defence, roads, we want to have low taxes, that’s why we’ve been cutting income tax and company tax, but we’ve still got to maintain that proper financial position.

WILLACY:

And the Prime Minister, a former Treasurer, obviously a fiscal hard man if you like, are you and him of absolutely the same mind on this, in this creative balance of debt and spending?

TREASURER:

Yes, because one of the great achievements of the Government was, don’t forget when, before we came to office there was never a talk of a surplus. The question was always how big the deficit was and when we came to office it was $10,000 million in the red. We’ve put the Budget back into balance. We’re now delivering surpluses, we’re paying off all of the Labor debt and that is consistent with keeping your economy growing on low interest rates and providing more jobs.

WILLACY:

But can you keep the markets happy and your backbench happy? You’ve admitted it’s a creative balance, it’s fairly tight for you, it’s a juggling act.

TREASURER:

Oh look, these are not easy decisions. Anybody that thinks it’s easy to manage an economy of this dimension with these sorts of pressures doesn’t fully understand the situation. But I’ll tell you this, I’d rather be managing an economy which is growing on a 6 per cent unemployment rate which it now is, than what it was when we were elected which was an 8 ½ per cent unemployment rate.

WILLACY:

Well, we’ll get to unemployment in a minute. But just finally on this issue of the surplus. The Farmers Federation has once again renewed it’s call for a freeze on excise. Some people are saying the farmers are complaining too much here. Would you agree?

TREASURER:

Well, the farmers have probably had the best deal out of fuel taxation reform of any group in Australia. Let me say very briefly what it is. There is no excise on diesel they use off-road. They don’t pay any tax at all on their diesel for their tractors and their headers. Secondly the diesel on-road which transports their goods to and from the farm or to and from the supermarket or the corner store where they buy stuff, the tax was cut 24 cents a litre.

WILLACY:

So they should stop whingeing essentially do you think?

TREASURER:

Where they use petrol in their business, tax was cut 10 per cent. They get one, all of the GST back. All of the GST back. So the only place that a farmer will actually face the consumer rate is when they are using a car for private purposes, non business purposes, and farmers like everybody else there have to pay world oil prices. But in relation to those three other areas, they have had significant wins,

wins which are as good if not better than any other part of the community.

WILLACY:

So, are you disappointed then that they’re continuing on with this campaign? Are they complaining too much?

TREASURER:

Well, I think from what I heard the farmers say that they, they like fuel tax cuts, they’ve had fuel tax cuts. And they like more money on roads and they’re getting more money on roads. So I think the farmers are facing a reasonably good deal at the moment.

WILLACY:

Now, you’ve already been accused of playing politics by not including the first quarter GST returns in this Mid Year Review. Last night the Tax Commissioner, Michael Carmody, said a clear picture of this first quarter returns would be known next month, so why the rush with the Mid Year Review?

TREASURER:

Well we put out the Mid Year Review six months after we do our Budget, if we can. The first quarterly returns are not yet received and even…

WILLACY:

They’re not far away though according to the Tax Commissioner.

TREASURER:

Well, most of them should be in by the end of this month. And then you’d go to work trying to analyse what they mean. And the second returns will be in at the end of January when we think we’ll have a better fix. But we do include the GST revenues in this Budget. The amounts that we include are the amounts that we’ve forecast off the state of the economy. How you, basically how you forecast the GST revenue, is it’s 10 per cent of consumption, and that’s what we’ve got in this Budget. What we don’t know and what we only pick up from returns is timing differences or some other factor that we haven’t allowed for. We’ve picked up a big timing difference already from the monthlies, we’ve allowed for that, but the best estimates are still in there which is the 10 per cent off, off consumption.

WILLACY:

Well as you alluded to before on the upside is employment. Now you’ve tipped unemployment to dip below 6 per cent for the first time in a quarter of a century. How low can it go in your opinion?

TREASURER:

This is an interesting question. The OECD was saying a few years ago that the structural rate of unemployment, that is the lowest it could go in Australia would be in the 7s. Now we know it can go lower than that because it is now at 6.3.

WILLACY:

Have you got a figure in your mind? You know what level would you be happy with realistically? What would you, how would you define your success as a Treasurer in this, this area?

TREASURER:

Well I think it can go below 6. Yes I do. We haven’t been in that territory for 25 years. But I think we can. We’re not that far off it. I don’t see emerging inflationary pressures in the economy and if we can have moderate wage outcomes, that is, full employment doesn’t lead to wage pressures, I believe it can go below 6. In fact you know I think you could see that if we grow the economy strongly for another year.

WILLACY:

Peter Costello, thanks for joining us.

TREASURER:

Thank you.