Peter Costello

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Economy, Australian Dollar, US Dollar, Mark Latham, RBA Governor - Doorstop Interview - 1343 Malvern Road, Malvern Victoria

 

TRANSCRIPT
THE HON PETER COSTELLO MP

Treasurer
Doorstop Interview

1343 Malvern Road
Malvern Victoria

Wednesday, 2 July 2003
10.15 am

 

SUBJECTS: Economy, Australian Dollar, US Dollar, Mark Latham, RBA Governor

TREASURER:

As we look at the forecast for the Australian economy, we see an economy which continues to grow faster than other economies around the world, and in particular, the global situation is affected by the weakness in the US economy. Now it appears as if in the United States there is reason for some cautious optimism, that perhaps the United States economy is beginning to pick up. We saw a recent announcement from the US Federal Reserve where it did cut interest rates by 25 basis points, but it remarked on the fact that there were some cautious signs in the United States. So here in Australia we are watching the global situation very, very carefully indeed. Our biggest risk to the Australian economy continues to be the global economy, and if that picks up, that will be positive for Australia. We still have the difficulty in relation to drought, here in Australia which has not completely broken and that is affecting domestic growth as well, but taking those matters into consideration the Australian economy continues to grow and to grow faster than the other economies of the world, and that is very much the economic outlook that authorities would have been looking at today.

JOURNALIST:

What's the biggest concern in the domestic economy? Is that the fact that the Aussie dollar has recorded its fastest quarterly gain in 20 years, or is it the housing boom?

TREASURER:

Well let me say, the fact that the exchange rate is rising is making it tougher for Australian exporters. And for rural exporters in particular it is not just the fact that the exchange rate has risen quite considerably, but of course the drought means that conditions have been quite difficult for them. But you have got to bear this in mind, that the US dollar was over-valued and that the period through 1999 and 2000 when the Australian dollar was weak against it, I kept saying that the US dollar was over-valued, the US dollar is now correcting. But it does mean that Australia has lost a little bit of the competitive advantage that it had through 1999 and 2000.

JOURNALIST:

What do you think this decision will do, how will it affect our trading position overseas?

TREASURER:

Well, the Australian economy continues to run stronger than the other economies of the developed world, and that creates this problem: that whilst we are producing goods for export, because the other economies of the developed world are weak, they are not having the same demand for our exports that they would have if the global economy was strong. It means that our markets are weak, so that the demand for our product is weaker than it otherwise would be. And so, the most important thing that could happen for Australia, is to see other economies like the United States and Japan pick up their growth, start to grow like we have been growing, because their weakness is a brake on economic growth here in Australia.


JOURNALIST:

Farmers I suppose are really the one industry group that is probably going to be hit hardest by the decisions to leave interest rates as they are. Can you understand their disappointment?

TREASURER:

I think the trouble for Australia's farmers, is, firstly of course, the drought that has not yet broken which means they don't actually have the normal product that they would have to actually export. And secondly of course, the exchange rate does mean that they are less competitive than they were say in 1999 or 2000. But that was a very unusual period, the US dollar strength meant that our exchange rate was exceptionally low, I think I said at the time super-competitive, I said at the time it would correct, and it has.

JOURNALIST:

But are we in a worsening situation, you have got the rising dollar, our exchange rate has held steady while others are falling, I mean aren't we seeing an actual deterioration in our exports (inaudible) at the moment?

TREASURER:

Well when you say, are we in a worse position, the fact is that the Australian economy is growing stronger than the United States and Europe and Japan, and practically every other developed economy of the world. So that actually puts us in a better position than those other economies. But the fact that they are weak, means that we are not getting the kind of stimulus that we were getting say in 1999 or 2000. The fact that they are weak means that their demand for our exports is weaker. The fact that they are weak means that we don't have the super-competitive exchange rate that we had in 1999 and 2000. And so things are more difficult for us on the export front then they were in 1999 and 2000, but what's creating the problem is the weakness of other economies, and until we get a full, fully-fledged recovery from the US, until we see global growth go back to something like trend, this is going to be a difficulty not just for Australia, but for the world.

JOURNALIST:

Treasurer what key economic indicators are you going to be watching at (inaudible)?

TREASURER:

Well, of course, a pick-up in business investment and a pick-up in growth is what the world is waiting for in relation to the United States. The United States has been through a big crash. Now, there has been in relation to business investment and a crash in relation to equities, and it has been through a recession. People in Australia forget this. The United States has been in recession. Normally we would be in recession as a consequence, but the resilience of the Australian economy kept us growing, but growing in a more difficult international environment.

JOURNALIST:

Mr Costello on another matter, Simon Crean is expected to announce Mark Latham as Shadow Treasurer, how do you think you will go up against him?

TREASURER:

Well, the Labor Party first had Gareth Evans as their Treasury spokesman, then they had Simon Crean who was not up to economic responsibility, and then they had Bob McMullan. Now they look as if they are going for their fourth Treasury spokesman. But their real problem is not who they put into the job, the real problem is their policy. Now whilst you have an opposition that won't stand up for economic responsibility, it doesn't matter who their spokesman is. So if Mr Latham wants to change Labor's policy, if he wants to support the Government budget measures on pharmaceutical benefits, on disability pension, if he wants to support the Government's budget policy, then he could step out of the failures of all of his predecessors. But if he is going to continue their failures, if he can't change the policy on pharmaceutical benefits, on disability, if he can't support the Coalition Government's record of economic responsibility, he won't make any difference at all.

JOURNALIST:

Mr Latham is known as being a bit of a head kicker, do you think life could become a bit colourful for you as well?

TREASURER:

Well he is not just a head-kicker, as the taxi drivers of Sydney can attest. But the test here of course is not how good he is with his fists, the test here is whether or not he can change Labor Party policy. Can he support the Government Budget? Can he support our position on pharmaceutical benefits? Will he change Labor Party policy on the disability pension? Because if he is just going to continue the Gareth Evans, Simon Crean, Bob McMullan legacy, then he will make no difference at all.

JOURNALIST:

Are you confident that the RBA Governor Ian McFarlane will be re-appointed come September?

TREASURER:

I will be making an announcement on that when the time comes. Thanks very much.

2 Jul 2003

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