Former Treasurer Peter Costello, tells Ross the government needs to cut the budget…. right now.
Introduction: I’d manage the budgets differently
Ross Greenwood: To start the program this evening, I want to go to somebody who has also been instrumental in our economic debate over a very long period of time. And now, as the chairman of the Future Fund really holds in his hands the public servants’ future pensions but also then to take pressure off the federal budget into the future. That is the former federal treasurer, Peter Costello who today made himself a landmark speech in regards to banks’ economic strategy and also some of the CEOs of those banks salaries as well. Let’s now go to Peter Costello who’s on the line. Many thanks for your time, Peter.
Interview: Peter Costello, former Treasure
Peter Costello: Great to be with you, Ross.
Ross Greenwood: Okay. Just tell me about bank chief executives’ salaries. I do note last year that the top 12 executives at the Commonwealth Bank were paid 52 million dollars, it was up by 30 percent. That the Westpac chief executive paid 6.7 million dollars, which has 80 times the average Australian’s wage. Do they do 80 times the amount of work or good for the nation?
Peter Costello: [laughs] Well, the point I was trying to make today is that banks are an incredibly large part of Australia’s stock market. In fact, the four banks are the four largest companies on the stock market, 25% and they are immensely profitable. Is this because our bank executives are all geniuses? Well, my point is that we have a regulatory system which favours banks in the interest of stability. It’s been good for banks, it’s helped them be stable and we needed that during the financial crisis. But the bank chief executives ought to bear in mind it’s the regulatory system which is underpinning the health of the banking sector and not get too carried away thinking it’s their individual brilliance.
Ross Greenwood: That being the case and there have been clearly scandals that do affect many of the customers of those banks, does the Labour Party’s call for a Royal Commission hold any track with you?
Peter Costello: I can’t really understand what that’s about. You’ve got you’ve got a situation where yes, there have been some banks scandals but let me put this in context. The Australian banking system during the financial crisis of 2008 performed better than probably any in the world. Now, there have been scandal, sure but nothing like the financial failure that happened in the United States or in Britain where taxpayers had to actually bail these banks out. I’m not saying they’ve been so lily-white, they’ve made their mistakes but if you put it in a global context, they’re actually considered probably the best performers.
Let’s go the next step. is this because the banks are brilliantly run and we have geniuses for chief executives? The point I’m trying to make — I’m not being critical of them but the point I’m trying to make is in Australia, we have a regulatory system. Well designed, and I was involved in designing it so I’ve got to say that, to make sure these banks are stable and they’re profitable. And it’s really the regulatory system and the state of the economy as much as anything else that underpins those Bank problems.
Ross Greenwood: Do you believe that it’s politics that drives the call for a Royal Commission by Bill Shorten and Chris Bowen.
Peter Costello: Well, the point I’m trying to make today is when you have a Royal Commission, you’re looking for some alleged or suspected illegality. Like there’s a Royal Commission going on into sex abuse, right? Which is looking at the churches. There’s a Royal Commission going on in relation to detention in the Northern Territories looking at whether the government was improperly imprisoning people in the military. That’s the kind of thing you have a Royal Commission into. You don’t have royal commissions into financial regulation or anything like that. We’ve had financial system inquiries that have looked at that. I commissioned one. A Royal Commission is — it’s like a court of law, it’s not for this kind of thing. This kind of thing is policy.
Ross Greenwood: Okay. Let’s go to another aspect of the Australian economy which is sluggish right now, there is no doubt. The problem is trying to stimulate the economy when interest rates are already at record lows and at the same time the country is worried about the level of government debt, federal government debt. As a former and successful treasurer, what is the recipe to try and get the Australian economy moving again?
Peter Costello: Well, I do think the government’s got to work on balancing the budget reducing debt.
Ross Greenwood: How do you do that without plunging the Australian economy back into recession?
Peter Costello: It’s got to be a sustained effort. You got to bear in mind that we’ve now had what is it? Eight deficits in a row, the governments forecasting another two or three. That’s a decade a deficit and you can’t go on spending money you don’t have forever, now it’s got to make concerted efforts. The one thing I would say that we never really seem to focus on these days in Australia, it seems we’ve gone off the agenda, is making the economy more productive.
Everyone says low-interest rates. Yes, I agree with that. Some people are saying your government expansion tree are spending well. As I say, you can’t do that forever. What I’d like to see is a bit more enterprise and a bit more reform on the supply side of the economy, which would get things firing up a bit. That’s the area I’d be looking at.
Ross Greenwood: There’s interesting things inside even your own party and that is Tony Abbot, Joe Hockey had what would be called a contractionary budget, tried to cut spending. We’re not able to get that through a hostile senate and you have had that basically thrown out in terms of policy in the last budget. Scott Morris and Malcolm Turnbull come out with a budget that seems to be more of a spending budget more capable of getting through the actual senate and through the parliament. More parts of it at least. Which of those strategies is right, do you believe?
Peter Costello: Well, my own view is that we’ll have to get spending in Australia under 25% of GDP, that’s the measure. You can’t balance a budget if it’s above that and even preferably under 24 % but let’s start by getting in under 25%. When I left office, we had it down to 23.
Ross Greenwood: Do you think this government has a hope in hell of getting it down to 25%?
Peter Costello: There’s two ways you can do that, Ross. One is you can reduce expenditure aggressively and I do think we’ve got to work on expenditures. The other is you could grow the economy because on the same amount of spending a bigger economy, you will actually reduce the spending to the economy, if you see what I mean, as a proportion. You’ve got to work on both of those angles I think and we can’t give up, we can’t say — see, this level of spending we’ve got at the moment, Ross was the level of spending that Rudd said we needed as an emergency response to the financial crisis in 2008. We went into emergency spending in 2008, we’ve hardly come out. This is the problem, we’ve hardly come out. It’s gone down a little bit but it hasn’t gone back to what it was and this is the problem. Okay, you might have big spending in an emergency, are we still in the emergency 10 years later? This sort of stuff gets locked in and then after you do it for a decade or two decades, suddenly you find yourself, “My debt’s a bit out of control and I can’t do anything about it.”
Ross Greenwood: This is part of the philosophical battle that goes on between Tony Abbott and between Malcolm Turnbull. Because to me it seems at least and you mentioned it today, big institutions be it government, or be it banks, or be it whomever it might be, big organizations are basically being looked down upon by individuals at the moment. As soon as somebody comes out and says, “Let’s get the spending down,” to try and sell that message is a very difficult thing when you’ve got a very sceptical community.
Peter Costello: I that’s right. I think all institutions are under scrutiny like never before in our society and I said today MPs, Parliament, yes, government, yes, the church, yes, banks, yes, trade unions, yes. In a modern world of 24-hour media, everybody’s under scrutiny. Now, that just means you’ve got to try and have the highest possible standards you can and you’ve got to be seen to be honest with the public. You can’t get away with covering these things up anymore. This is a world where everything is out there on display and I think I’d say in government, you’ve got to level with the people. You got to level with them.
Ross Greenwood: If you level with the people even if you lose the election, is that a fight still worth having had?
Peter Costello: Well, I reckon you got a level with the people because the long term, you got to do what’s in the national interest. It’s in everybody’s interest to do that and you got a level with them, you’ve got to explain the problem. First of all, you’ve got to let them know what the problem is, explain the problem and then maybe they’ll be in favour of actually dealing with the problem.
Ross Greenwood: Let’s hear our Peter Costello. Always great to have you on the program. The former federal treasurer and the chairman of Australia’s Future Fund. We appreciate your time.
Peter Costello: Good on you, Ross. Thanks.