As It Happened
A $4-billion boost to the Australian economy. That's the catch-cry from supporters of the free trade agreement with the US - a figure quoted by Government ministers in the Senate yesterday. But that figure is now looking more than a little rubbery.
But even if Australia had achieved all it wanted from the free trade deal, the figure of $4-billion a year wouldn't hold. The CIE's own report actually estimated the deal would be worth US$2-billion annually. The notion it would add $4-billion a year to our economy assumed that US$1 would be worth AU$2, but the Aussie dollar is now buying more than 78 cents, and that's more than 50 per cent above the level assumed in the report. In other words, on current exchange rates, the deal would have been worth $2.56-billion if all had gone to plan. But it hasn't.
Stephen Long on AM
ALEXANDRA KIRK: There is now some debate about the figures. Your fellow Ministers, Robert Hill and Ian MacDonald, were in the Senate just yesterday saying that it was still worth $4-billion a year to Australia. Is it?
PETER COSTELLO: Well Alex I've said it's overwhelmingly in the national interest and will be positive for Australia. Now I listened to the introduction and I think the main point that was being made there is that a benefit of US$2-billion on an exchange rate of 50 cents is different to a benefit of US$2-billion on an exchange rate of 78 cents.
ALEXANDRA KIRK: Correct.
PETER COSTELLO: And of course these things move, these exchange rates move every day, and to think that you can adjust economic benefits over a 10 or 20 year period on exchange rate assumptions is looking for a false precision. You know, Alex, what do you think the exchange rate will be in five years' time?
ALEXANDRA KIRK: So how much do you think the deal is worth now?
PETER COSTELLO: Nobody can tell you what the exchange rate will be in five years time. You can't even tell what it will be in five months' time let alone five years' time, but I will make this point. We are gaining access, enhanced access, to a market of 300 million people. That market is gaining enhanced access to our market of 20 million people. The bigger benefits are going to go to the people who are getting access to the larger market. This is why it's in Australia's interest. We take a country of 20 million people and suddenly we get enhanced access for our goods and services into a market of 300.
ALEXANDRA KIRK: But how much is that …
PETER COSTELLO: That's where the benefit comes.
ALEXANDRA KIRK: But how much is that enhanced access worth?
PETER COSTELLO: Well, as I said to you before, it's a false precision to make exchange rate assumptions for five months or five years.
ALEXANDRA KIRK: But you have your ministers in the Senate.
PETER COSTELLO: I'm not putting specific $A or US$ benefits on it, what I'm telling you …
ALEXANDRA KIRK: But your ministers are, aren't they?
PETER COSTELLO: What I'm telling you is, this is in Australia's national interest because we get access to a market of 300 million people, and that will enhance our trade and our economy.
ALEXANDRA KIRK: So will you pull your ministers into line? Will they no longer say that this deal is worth $4-billion a year?
PETER COSTELLO: Well Alex, valiant try, but as I said to you, this is overwhelmingly in Australia's interests, and the question is …
Alexandra Kirk interviews Peter Costello on AM immediately afterwards
ANDREW STOECKEL: Well the $4-billion a year, right, that's in Australian dollars, and our estimates, all our estimates were based in US dollars, which was $2-billion.
STEPHEN LONG: So on the current exchange rate, you're talking about AU$2.56-billion in benefits if all your assumptions had held?
ANDREW STOECKEL: If all our assumptions had held, at an exchange rate of 68 cents to the US dollar, which it was when we did the analysis, then that would have given US$2-billion of benefit to Australia.
STEPHEN LONG: And what about now with the exchange rate at US 78 cents?
ANDREW STOECKEL: Well, you'd have to adjust that number by two things. One is the exchange rate in modern day terms, and then you'd have to take a ten-year view of that, because you have a flow of benefits over time which you need to discount. And secondly we didn't get everything we wanted. In particular we didn't get things like sugar, but then we got some other things that, for example on Government procurement, which were not in that analysis. So there's a whole series of unders and overs you'd have to look at and recalculate to get any sensible number from that US agreement.
STEPHEN LONG: So it's pointless quoting a figure of $4-billion a year in benefits without doing further modelling and analysis?
ANDREW STOECKEL: Correct, you're really… because it's very different. We assumed three things. We assumed there'd be full liberalisation, we assumed there'd be a 50 per cent liberalisation, and we assumed a 25 per cent liberalisation. Now in the wash-up we've achieved a lot of liberalisation, very quickly in some areas, and no liberalisation in other areas, particularly say sugar which is a big one.
STEPHEN LONG: You'd have to say, though, that the bottom line at this stage is that given that we didn't get those gains on sugar, we got less than assumed in some other areas of the agreement, that it's pretty rubbery to be quoting a figure of $4-billion a year annually in benefits?
ANDREW STOECKEL: Yes it would be. We really should get away from that estimate. There'll be a new estimate. There'll be some pluses to the estimate from what we estimated and there would be some negatives.
Dr Andrew Stoeckel talks to Stephen Long on AM later
The Stealth Treasurer also had this to say on the subject of parliamentarians' superannuation:
PETER COSTELLO: No, I would ask this question. By changing the super scheme do you think you'll get better MPs? I'm not sure that it'll give you better MPs. I think we oughta do things that will get us better MPS in Australia, but I don't think this is one of the things that will do it.
Now can I move onto judges, because this is a very important point. Mr Latham says that he's going to cut superannuation for Federal judges, but not State judges. What this means is that the good people will not take Federal Court appointments, they'll take State Court appointments.
I'll make another point. Is there one Labor premier that came out yesterday and said he would forego premiers' superannuation? Cause under the Latham plan, you know what this means? The State MPs are going to be on much more generous superannuation than your Federal MPs. Will that get the best people into Federal politics? I don't think so. And there was an ominous silence from the State capitals yesterday
I think that what Mr Costello is trying to say is that the result of Mark Latham's proposal would be that, in future, talented, able people like Bill Heffernan, Santo Santoro and George "Own Goal" Brandis, will find the remuneration and perks in State Parliaments more attractive than the remuneration and perks on offer federally. That is worrying.