Peter Costello

Transcript No. 2001/026

SUBJECTS: Mobile spectrum, Budget, IMF report, Woodside, interest rates, business tax

JOURNALIST:

Treasurer, does the Government now have a rather large hole in its budget because of the mobile spectrum?

TREASURER:

No.  The spectrum proceeds in relation to this financial year, not in relation to next financial year.  I notice that the spectrum option tipped the reserve and the Government’s been constantly monitoring values and adjusting its estimates accordingly, and the price that was achieved today was a little above what we thought it would be and that’s why we set the reserve where we did.  The valuation in relation to spectrum has been revisited and revised on a couple of occasions.  We revised it at the time of the Mid Year Review and we’ve revised it subsequently to that and set the reserve accordingly.  And the price that came out was a decent price.  We wouldn’t have sold it if it wasn’t a decent price.  And it was a price that we expected was real in the current circumstances.

JOURNALIST:

Can you estimate the budget surplus?

TREASURER:

What - the outcome for the current year?

JOURNALIST:

Yes.

TREASURER:

Well, the outcome for the current year will be according to our fiscal policy, which is to keep running surpluses. 

JOURNALIST:

It would have to put a dampener on any plans for further tax cuts [inaudible]?

TREASURER:

Well, I don’t know that we’ve ever talked about further taxation policy.   At the moment what we’re doing is we’re remaining to continue the business tax reforms.  I made an announcement in relation to some of those today and what happens in the future, you’ll have to wait to see.

JOURNALIST:

Were your comments this evening about globalisation suggesting any support for the Woodside bid?

TREASURER:

I don’t think you could read them one way or the other on the Shell bid for Woodside.  That’s a matter which the Foreign Investment Review Board will make a recommendation.  That’ll come to me when the recommendation’s made and will be determined according to the national interest.

JOURNALIST:

What about the …  What do you think of the IMF’s suggesting that perhaps you should be cautious, looking at interest rate cuts, further interest rate cuts?

TREASURER:

I think that the IMF report noted that after a period of raising interest rates, the Bank had commenced cutting them.  We believe that interest rates should be as low as is compatible with our inflation targets because we’ve given the Bank an inflation target of two to three per cent.  Inflation is very low and I don’t see any great signs of it breaking out.  So they’re all matters that the Bank will be considering at its meeting, which is probably in about two weeks.

JOURNALIST:

Why is the IMF so cautious?

TREASURER:

Well, the IMF has views on these things.  We always respect its views but we don’t necessarily always agree with its views.  I think the IMF probably was looking at this particular issue at a time before you’d seen some of the developments in the United States, for example.  We saw the United States’ Federal Reserve cut rates by 0.5 of a per cent during this week.  And obviously at the time the IMF was doing its report on the United States and on Australia, it didn’t know that that was going to be the outcome this week.

JOURNALIST:

Several economists locally have said that the IMF report card is largely irrelevant because it doesn’t include the December figure.  What’s your response to that?  Is it irrelevant?  Is the data too old to make an accurate assessment?

TREASURER:

It depends what you use these reports for.  I think the best thing that you can use these reports for is to get a handle on good and important policies.  And I think the IMF report is very up to date and accurate when it talks about the importance of labour market reform.  That’s very important for Australia.  You know, it notes that with the Labor Party, the union party in the Senate, that this is very difficult to do.  But it notes the importance of it.  It notes the achievements of taxation reform, which it also says would be foolish to try and go back on taxation reform.  And it notes the importance of reforming our markets.  I think the best use that IMF reports can be put to is as an external comment on the important policies that one should follow.  Now, let me make this point.  What do you think the IMF would report on a Beazley policy if it could find it?  You are all sort of laughing and I think that’s probably what they’d do, too.  If the IMF was asked to comment on a prescription for Australia which was to undo taxation reform, regulate our labour markets, take competition out of our product markets, have a budget policy which would be incapable of definition – I think you’d be seeing a very different IMF report come out. 

JOURNALIST:

Treasurer, the Government has delayed some business tax changes for 12 months.   Is that another concession to small business?

TREASURER:

No, with business tax reform, we’re doing something that is the biggest reform in 70 or 80 years and you’ve got to make sure that your reform is introduced in a way where people can get maximum benefit.  Now take consolidation, for example.   Consolidation is a good thing, which I think most Australian businesses welcome.   Are all Australian businesses in the position where they could take advantage of it on 1 July this year?  No they’re not.  And after consultation, the view that came back to us from business is:  Yes, we want to go ahead with it but we’re not ready for it now.  Can you stagger the introduction from 1 July?   We listen, we consult and we will.  And I think actually business will welcome that.  By and large Australian business will be very happy with all of the announcement that’s been made tonight.

JOURNALIST:

[inaudible] the IMF was supportive today of the Reserve Bank’s handling of the currency situation.  Do you also support the Reserve Bank at this point?  I mean [inaudible] below 50 cents [inaudible] has the policy been directed towards the currency [inaudible]?

TREASURER:

Look, my view is – and it was the IMF’s views – and I’ve said this on numbers of occasions:  The current exchange rate does not reflect fundamentals. Australia’s economic fundamentals in important respects like inflation, productivity, current account, give us a very, very stable economy.  And I think the exchange rate has not been properly reflecting that.  And not just I have said that.  The Reserve Bank Governor has said that.  The IMF have said that.  The IMF made that point today.  But obviously people are going to take some time to re-assess.   In the long term, your exchange rate reflects fundamentals but in the short term it overshoots.  And it can overshoot.  And I think that was a point that was made by the IMF today.  Thank you.