Subjects: economy; housing industry; home buyers grant increase; petrol excise; small business; foreign investment
E&OE................................
JONES:
The Prime Minister is on the line, Prime Minister Howard good morning.
PRIME MINISTER:
Good morning, how are you Alan?
JONES:
Not too badly. Prime Minister a tough week, and I suppose with the by-election next Saturday it's not going to get any easier.
PRIME MINISTER:
No, but that always comes with this job. It's important that the economic figures that came out a couple of days ago be seen in perspective. We had a bad December quarter, but that doesn't mean the economy has hit the wall or in recession. We had a bad December quarter, but we've had five years of very strong growth, and our fundamentals, our low inflation, our low interest rates, the fact we have a balanced budget, that fact that we have lower unemployment, all of those things mean that basically the economy is very strong, even though we've had a negative quarter. I think a lot of that negative quarter was due to a sharp downturn after the first of July in the home building industry.
JONES:
Yes, I see the Master Builders Association are saying, this is not you or Peter Costello, that the five increases in interest rates since November 1999 had gone a long way to shaving $9 billion from gross domestic product this year, and it cost at least 1000 jobs. You were somewhat critical of that yourself weren't you?
PRIME MINISTER:
Well I was asked whether I thought certain increases were justified, and I said that I hadn't felt they were. But I don't particularly want to add to that, I mean the management of monetary policies is a challenging thing for the Reserve Bank, and importantly we are now seeing interest rates falling, and they've come down by three-quarters of 1%. The average loan re-payer is about $270 a month ahead of what he would have been five years ago.
JONES:
So that means he doesn't pay tax on that, that's better than a wage increase.
PRIME MINISTER:
Well much better than a wage increase, I mean he is a long way in front, he or she is a long way in front as a result of the fact of us now having much lower mortgage interest rates. But the home building industry had a surge of activity before the first of July last year to beat the GST, we knew that would happen, but there has been a very significant falling away since then, and there's no doubt, on the basis of what was put to me by the House Industry Association last week, that there has been quite a severe contraction.
JONES:
And it involves in (inaudible) multiplies, is there some thing you can do for the housing industry to give that a kick start?
PRIME MINISTER:
Well there is, and I'm going to be announcing later today that we're going to double the home savings grant for new dwellings. And this will give an immediate stimulus to the home building industry.
JONES:
That's the first home owners grant?
PRIME MINISTER:
The first home owners grant.
JONES:
It's currently $7,000.
PRIME MINISTER:
.$7,000 and we are going to double it to $14,000 for new homes. It will remain at $7,000 for existing dwellings, the value of that for the home building industry is obvious and immediate, and it will have the effect of generating, pretty quickly a great deal of activity not only in the housing industry, but also in areas like hardware and so forth, and all of the things.
JONES:
And whitegoods. Lets get that again, so if the, firstly it's first home buyers, if Ross the panel operator here goes out now today and buys his first home.
PRIME MINISTER:
That's right.
JONES:
. and buys a home that someone has already lived in, he'll get the $7,000 grant. If he buys a brand new home he'll get $14,000.
PRIME MINISTER:
Or enters into a contract to build a brand new home.
JONES:
Yes.
PRIME MINISTER:
And if, we're going to have it for a limited period from now until the 31st of December this year and then for new homes it will revert back to the $7,000.
JONES:
Yes. That will cover what you obviously have had pointed out to you by the housing industry, that my understanding is that of the over 82,000 grants awarded since January under this first home owners grant of $7,000, only 7% have been for new houses.
PRIME MINISTER:
Yes, what they had argued to me is the way the market is operating now with the impact of the new tax arrangements, the incentive to go into building a new home is less than it is to buy an existing home. And although there remains a growing, consumer preference for new houses, for existing stock, the ratio has been distorted very badly. And therefore something needs to be done to get more activity into home building. We've got two things operating now, we've got the momentum that will come out of the falling interest rates, that will help. We'll get a lot of people back into the market, both for new homes and existing homes, and on top of that, with this special, carefully targeted measure. I mean we looked at the figures yesterday very carefully and it was obvious that the big problem in the December quarter was the housing industry. The big problem was the housing industry, so we said right the sensible thing to do is to target a short term stimulus to that industry, knowing that it reacts very quickly and knowing that there will be great flow through benefits for other sectors, whitegoods, hardware, etc. And the multiplier effect of greater activity in the home building is obvious.
JONES:
Yes, carpets and sinks and the whole.
PRIME MINISTER:
The whole (inaudible). Now this is a sensible targeted measure. There's no point in sitting on our hands and doing nothing when you have in front of you clear evidence that there is a problem in a particular area.
JONES:
And what will be the cost of that to the budget surplus?
PRIME MINISTER:
The cost is about, in the current financial year we've been told in the order of $60 million, and in the next financial year $90 million. It is for a limited period, it is from today until the 31st of December, so we believe that that will have the effect of smoothing and complementing the natural rise in activity, which is beginning to occur now, but it's very slow.
JONES:
They've got the double advantage, they've got lower interest rates, now if they then go out and buy a new home, anyone buying their first home, they will have the $14,000 first home owners grant.
PRIME MINISTER:
And this is, this will be a particular benefit to people living in outer suburban areas, where land is relatively, I mean nothing's cheap, relatively cheaper.
JONES:
That's almost the cost for the deposit.
PRIME MINISTER:
It is, and it will certainly be of great value for people living in country towns.
JONES:
Can I just take that stimulus question again, because I think you've made that point very clear, and I'm sure there'll be many people who will be gratified by it. But I see one economist saying today that a package of measures including a temporary, temporary because you say this is temporary, 10% cut in excise cut on alcohol, petrol and cigarettes, would provide a much needed and immediate stimulus to the economy. What do you say to that.
PRIME MINISTER:
Well that would certainly provide a stimulus, but it would certainly punch an enormous hole, I mean a 10% cut in petrol excise alone is 3.5 billion. And that would put us into the red and I don't think that would help the dollar.
JONES:
Are you concerned that the 1.5 cent last week has already been taken away by the removal of the discounting strategy and, indeed, by the lower dollar forcing up the price of imported crude?
PRIME MINISTER:
Well, Alan, it was always the case that those factors were greater than excise but the public clearly wanted the Government to make some contribution towards relieving the high price. And at least I can say to the public that the price is 1.5 cents lower than it would otherwise have been. And these things would still have happened whether we cut the excise or not. So it is still 1.5 cents a litre cheaper than what it would otherwise have been. And, on top of that, we are saying to people that in future we are not going to have these automatic tax rises every six months which will add to the price of petrol.
JONES:
Are you concerned that all the debate about the takeover of Woodside Petroleum and the likelihood of the Government refusing to countenance that go ahead might effect the value of the dollar? And the second question, I suppose, which is tied in with that, would you be happy if the Foreign Investment Review Board imposed certain conditions on the takeover to ensure that, say a Woodside Chairman was Australian or the majority of Woodside directors are Australian or that the Woodside Head Office remained in Australia?
PRIME MINISTER:
Alan, I can't, for legal reasons, I ask you to accept and your listeners to accept, I can't comment on that particular case. The law requires that the Government, the Treasurer and myself, in particular, give complete procedural fairness to everybody involved. And until a decision has been taken any comment I make might be used by one of the companies if they ever took the Government to court over a decision, and they often do, might be used to suggest that we haven't treated them fairly. And I'm sorry.[inaudible].I'm legally constrained on that case.
JONES:
Okay. In relation to the BAS changes, Ian Macfarlane, your Minister for Small Business, is saying that small businesses are largely unaware of the changes to the BAS announced last month and yet they have to have another reporting mechanism in place by next month. Will these changes be in place and known about in sufficient time to allow the BAS to be properly completed?
PRIME MINISTER:
Well, that's the instruction that the Government has given to the Tax Office. I will check again, as a result of what you have said, to make sure that that's going to happen. That was the firm instruction, understanding and intention when these changes were agreed upon at a meeting between myself and the Treasurer and the Commissioner of Taxation and the Minister. That is certainly the intention and we were assured that that would be possible because we clearly want that to happen but I will follow it up. I was not aware of that particular comment by the Minister. I know he's working flat out to make sure that small business gets the immediate benefit of these changes. Could I just say on the subject of small business, what I've just told you this morning about new homes is an enormous shot in the arm for tens of thousands of small businesses around Australia. I mean, the home building industry is the sort of quintessential small business and this is of tremendous benefit to that sector of the economy.
JONES:
Are you concerned about the level of foreign debt which has now gone to about 46% of GDP? And I remember the years past when they used to say that, well, 40% of GDP people were knocking on the door. Given the uncertainty of the international economic environment, is that a matter of concern to you?
PRIME MINISTER:
I'll tell you why it's not a matter of concern is that we have a great capacity, an easy capacity to service it to pay it back. You can't avoid some foreign debt and it's no bad thing because there's not enough capital in Australia to finance all of the things we want to do in this country. So in the nature of things, companies go overseas to borrow. The critical thing is whether you have enough export income to enable you to pay the interest on that foreign debt and our capacity to pay the interest on that foreign debt is a lot better now than what it was a few years ago. And the other thing, of course, is that the debt owed by the Government - we've repaid about $50 billion of that in the last five years and, of course, that is now down to an almost minuscule level compared with the rest of the world. But foreign debt on its own is not wrong. It's the capacity of the country to service it. I mean, if you earn a big salary and you had a big loan, no problem. If you earn a small salary and you have a big loan, big problem. The point I'm making is that Australia's salary, if you like, is sufficiently large to service the foreign debt.
JONES:
Okay, just on foreign debt. You mentioned the fact that you need foreign investment because we don't have a capital base, that's a too significant capital base to be able to advance development in this country, should we be encouraging superannuation industry to invest the $100 billion that is currently placed offshore in Australia? And, secondly, isn't one of the factors about capital raising in this country directly related to the fact that foreign corporations have an unfair competitive advantage over Australian competitors because Australian competitors have to pay their taxes and the Tax Office tells us only 20% of foreign corporations pay tax?
PRIME MINISTER:
Well, the answer to the first question is that people put their money into superannuation funds to get a good return so they have a comfortable retirement income. And the view has been taken to date in this country, and I think it's a good view, the superannuation fund should be allowed to invest in those things that give them the best return for their members. And a lot of people will say, gee, we'd like more investment in Australia but I want the best returns on my superannuation. And that is the dilemma that superannuation funds would face.
JONES:
All right, well the second one - because we're running out of time - just on foreign corporations, you see, the argument being that only 20% of them pay any tax at all, doesn't that create a benefit for foreign corporations or a competitive advantage which is.?
PRIME MINISTER:
They don't have any particular privileges under the Australian tax law.
JONES:
No, but they most probably invest based on debt rather than equity and they retire their interest payments overseas.
PRIME MINISTER:
Yes, but I mean, in order to address that imbalance you'd really have to impose a differentially high tax rate on those companies in Australia and I think that would chase them away.
JONES:
Okay, good to talk to you and thank you for your time.
PRIME MINISTER:
Okay.
[Ends]