E&OE..........................................................................................
MITCHELL:
Good morning and prepare for 48 hour of election foreplay - pre-election
foreplay. The Prime Minister is expected to call the election on
Sunday. The vote is expected October. He is with me now and we will
take calls in a moment. Today Labor has put its tax bid in the market
place and it is getting a pretty rough assessment. I'll speak
to the Opposition Leader about that lately. But first in our Sydney
studio for his regular appearance on the programme, the Prime Minister,
Mr Howard, good morning.
PRIME MINISTER:
Good morning Neil.
MITCHELL:
Mr Howard I look at the world economic situation, Europe in turmoil,
the Dow down 300 points, the Australian dollar in crisis, the Canadian
dollar in crisis, commodity prices 21 year low, South Korea slumping
badly, talk of a world recession. And I see both you and Mr Beazley
offering tax relief and I wonder why. It is a bit like handing out
free lollies on the aircraft when it's about to crash.
PRIME MINISTER:
Well we're not just offering tax relief, we are offering tax
reform and that's the big difference. What we are doing is
changing the tax system to strengthen the Australian economy precisely
because we live in a difficult world economic environment.
MITCHELL:
Do you agree world recession is a possibility?
PRIME MINISTER:
No, that's a alarmist. But what I do say is that at this time
it is not the time to be changing the economic management of Australia.
At a time when the world is threatening you need a government that
has got a proven track record of good economic management.
MITCHELL:
So you are saying: stay with us.
PRIME MINISTER:
Certainly and whenever the election is I'll certainly be saying
that because we have a good record. We inherited a huge deficit
of $10.5 billion and turned it into a surplus. We've got interest
rates down, we've got inflation down, we've got business
investment up and Australia is still growing quite strongly despite
the Asian economic downturn.
MITCHELL:
But, Mr Howard, nobody wants to be alarmist but when you pull all
these things together.....I mean, the Reserve Bank buying the
dollar. The dollar what 55.3 overnight. I think every Asian market
except Hong Kong was in some sort of trouble. Our market has to
face difficulties today. I mean we have got serious problems haven't
we?
PRIME MINISTER:
The world is very unfriendly at the present time and that makes
it all the more imperative when looking at something like taxation,
we fix the system and don't just fiddle at the edges that we
reduce our business costs which our proposal will do.
MITCHELL:
But what's the point in fixing taxation if I haven't
got a job?
PRIME MINISTER:
If you fix taxation you are more likely to have a job because through
our plan the costs of producing everything in Australia will come
down because we are taking $10 billion annually off the costs of
business. We are taking $4.5 billion off export costs. We are making
the indirect tax base more efficient and therefore people who have
obligations will have to meet them under our system. See, what you
need at a time of economic difficulty is to make the system work
better and that is what our plan does. Mr Beazley's promises
don't address the weaknesses in the system. There is no reform,
we have still got the same old creaky indirect tax system....
MITCHELL:
I'd like to get to that, to his promise in a moment if you
don't mind. Just stay on the world economic situation....
PRIME MINISTER:
But the two things are related.
MITCHELL:
Of course, but the word recession I agree it's a word anybody's
reluctant to use but at the very least we are heading to a major
readjustment are we not and it's going to be tough?
PRIME MINISTER:
Well Neil, it is precisely because the Government knew that these
sorts of things were always possible that we got the budget in order
two years ago. I mean people criticised us for that. Mr Beazley
criticised us, he said: well you didn't need to fix the deficit
it would fix itself. Now just ask yourself where would Australia
now be if we still had a deficit of $10.5 billion and we still had
the sort of interest rates that we had two years ago. We would be
really vulnerable and weakened and at the mercy of a hostile world
economic environment.
MITCHELL:
Well can I ask you where Australia will be in 3 months? What is
all this going to do to this country? You said we were fireproofed.
Now, the reaction to the Australian dollar shows we are not fireproof
does it?
PRIME MINISTER:
Yes but, Neil, I can't, for obvious reasons, talk about a
particular level of the Australian dollar. But you have to look
at the internal realities of the Australian economy. And the internal
realities are that we have a low inflation rate, we have strong
business investment, we have the lowest interest rates in 30 years
and we have a budget in balance and we have significantly reduced
our Federal Government debt over the last two and a half years.
And you have a Government that has the courage to try and reform
the tax system to make the Australian economy more competitive.
So what I say summing all of those together is that that is the
kind of answer, that is the only answer that we can give to the
rest of the world. We can't control what happens on international
financial markets, no government can. But what we can control is
the internal strength of the Australian economy and our policies
have made Australia stronger. Taxation reform will make Australia
stronger and if Australia is stronger it will be better able to
withstand an unwelcome world environment.
MITCHELL:
You must still be comparatively pessimistic or have a more pessimistic
outlook now than there was. I mean are the outlooks being revised?
PRIME MINISTER:
Neil, the outlooks are always under review but the point I make
again is that we can't control what happens on Wall St, we
can't control what people do in dealing rooms of financial
institutions, no government can. But what we can control is how
we manage our own economy and how strong we make it.
MITCHELL:
Well where will we be in 3 months time, what is the impact of what
we are talking about on the average person listening to us now?
PRIME MINISTER:
Neil, it depends very much on things like, you know, duration.
I mean ups and downs in the levels of the currency and, once again,
I don't want to get specific are not of themselves things that
have long-term consequences. What really matters is our international
competitiveness. What matters is the cost of doing things in Australia.
That's why getting those production costs down through tax
reform is so important. That is why having low interest rates is
so important. The bigger the debt the more vulnerable we are to
adverse international adjustments. I remain very positive about
the Australian economic outlook. I have never said that we will
be completely unaffected by the Asian economic downturn but I have
said that we have been protected against the worst effects of that,
in no small measure due to the corrective measures the Government
took two and a half years ago.
MITCHELL:
But it's not just Asia now is it? I mean the European situation,
what's happening in Russia, the Canadian dollar down, Dow is
dropping.....
PRIME MINISTER:
Well this is just a reminder, this is just a reminder, Neil, that
whether we like it or not we live in a global economy. Some may
not like it but there's nothing we can do about it except -
and this is a very important exception make certain that
we make our domestic economy as strong as possible.
MITCHELL:
Well we are not fireproofed are we?
PRIME MINISTER:
Well we are certainly avoiding the worst effects of the Asian economic
downturn.
MITCHELL:
Will we continue to avoid the worst effects of the world economic
downturn?
PRIME MINISTER:
I believe we will if we follow the right policies.....
MITCHELL:
Mr Costello...
PRIME MINISTER:
....if we keep our budget in balance, in surplus. If we reform
our taxation system, if we keep our interest rates low and our inflation
low. If we do those things our prospects are much stronger and that's
why we have got to reform our taxation system. We don't have
the luxury of fiddling with it and playing at the edges.
MITCHELL:
Mr Costello was quoted today saying that the outlooks were more
pessimistic view of the economy now, the revised outlooks. Do you
agree with that?
PRIME MINISTER:
Neil, I haven't seen that particular quote....
MITCHELL:
The Financial Review paper.
PRIME MINISTER:
Well okay, I am not saying he didn't say it. But the clear
situation is that there is some impact on - by the rest of the world
- on the Australian economy but you have to ask yourself: are we
doing all that can be done in relation to those things over which
we have control. We can't control what Wall St does but we
can control what Australia does. And by reforming the tax system
we are going to give Australia a stronger, competitive edge, we
are going to reduce the cost of our exports, we are going to reduce
the costs of producing everything in Australia. We, therefore, are
going to make Australian businesses more competitive therefore more
able to employ more people and to export more goods and services
overseas. That is why tax reform is good for Australia so....
MITCHELL:
If I am the average....the average Australian listening now
though...I mean there has been nervousness around for some time
about employment, that goes through the period of probably the past
15 years. Is my job safe, are my kids going to get a job?
PRIME MINISTER:
Well your children are more likely to get a job in a low inflation,
low interest rate, competitive Australian economy than in a high
inflation, high interest rate, uncompetitive Australian economy.
A reformed taxation system that reduced the costs of every small
business operation is more likely to deliver your child a job than
one that leaves the existing out-of-date 1930s wholesale tax system.
We have a very clear choice at the moment and that is to decide
in favour of a tax approach which is good for Australia or have
a micro-debate about how it affects different interest groups within
the Australian economy. Important though that is, in the long run
what is more important is which approach the taxation will make
Australia a stronger country because if there is one thing Australia
needs at a moment of international economic challenge, and that
is domestic economic strength and the policies that are more likely
to deliver Australia domestic economic strength, a stronger Australia,
are those policies that ought to be supported.
MITCHELL:
Okay the average person will worry about their job and will worry
about interest rates, and how they can affect them. Will interest
rates need to go up?
PRIME MINISTER:
Well, Neil, I don't comment about the future level of interest
rates, but I do remind you that in two-and-a-half years we have
brought interest rates down dramatically to their lowest level in
thirty years and that has meant a saving to the average Australian
battler of $300 a month off his or her mortgage payments. Now that
is the best news on housing interest rates that Australians have
had in more than 30 years and it is flowing through now into the
small business sector. Actions and deeds speak louder than words
and promises when it comes to something like interest rates and
we have the runs on the board. We've got those interest rates
down from their very high levels under Labor. They are now at historically
low levels and they've delivered cuts worth $300 a month to
Australians.
MITCHELL:
Mr Howard, the election, have you decided yet?
PRIME MINISTER:
No.
MITCHELL:
Will you give it consideration over the weekend?
PRIME MINISTER:
Look, Neil it is obviously something that is on my mind but I haven't
decided.
MITCHELL:
When will you decide. Not when will the date be, but when do you
think you'll make a decision?
PRIME MINISTER:
Neil come on.
MITCHELL:
But you've seen the speculation that you are going to call
it on Sunday.
PRIME MINISTER:
Neil there is all sorts of speculation but I am not going to go
any further than to say that the matter remains under very close
notice and attention.
MITCHELL:
The Business Council, Stan Wallis said to me yesterday, the sooner
the better to get some stability one way or another. Do you think
there is an argument there?
PRIME MINISTER:
Neil, I haven't decided yet.
MITCHELL:
No no, I'm not asking whether you've decided. The stability
argument is important isn't it?
PRIME MINISTER:
There's a lot of arguments that have to be taken into account
and I'll take them all into account and when I've reached
a decision I'll make an announcement.
MITCHELL:
When you reach a decision, it is just immediate though isn't
it? I mean, you could decide now, and head off on a plane to Canberra?
PRIME MINISTER:
I don't know. I've never done this before. Well, I haven't.
MITCHELL:
No of course.
PRIME MINISTER:
It's a novel experience.
MITCHELL:
We'll take a quick break, come back with Mr Howard on Labor's
tax package and some calls.
[Ad break]
I feel I should apologise to the Prime Minister having John Laws
reading ads on the programme, however we'll take calls from
the Prime Minister in a moment.
Mr Howard just quickly, the micro-view if you like, as you said
of the Labor tax policy and yours. What about your case. High income
earner. How do you benefit under the Coalition package compared
to Labor?
PRIME MINISTER:
Well, I haven't done the exact calculation to be perfectly
truthful, but somebody on a high income is paying a lot more tax
to start with so if you have a cut in tax the dollar amount that
that person gets is obviously larger than the dollar amount that
a person on the lower income gets because they are paying a lot
more tax to start off with. You've always got to have a trade-off
between incentive and equity.
MITCHELL:
Do you accept that lower income earners will do better under this
package, under the Labor package?
PRIME MINISTER:
No, I don't, in an ultimate sense because I don't think
it is deliverable without the fundamental reform of a GST.
MITCHELL:
But they'll do better in a dollar sense won't they?
PRIME MINISTER:
Well, providing it is delivered, but in 1993 they were offered
the same deal without a GST and when Labor won they took away the
tax cuts and they increased the indirect taxes.
MITCHELL:
All right, but if they trust Kim Beazley, there's a better
bid there if you like, a better dollar ...
PRIME MINISTER:
Well, what matters, as I said a moment ago, is what you deliver,
not what you promise. And those people were promised this in 1993.
Labor got back on the strength of that promise, they took away the
tax cut. They put up the indirect taxes. There was no compensation
for the battlers and they were all worse off.
MITCHELL:
What do you think is high income these days?
PRIME MINISTER:
Well, the Labor Party thinks it is $50,000 a year. Now, there are
literally hundreds of thousands of couples, perhaps several million
couples whose combined incomes are between $40,000 a year and $60,000
a year. I mean, this idea, this new envy threshold, that a combined
income of $45,000 - $50,000 a year is rich, is unbelievable. I mean,
we don't want a society built on envy. We want a society that
balances equity and incentive. You want both. We won't survive
if we don't have both. We need equity for social stability
and decency but we need incentive to get the country to go ahead.
And the biggest social criticism that I have of the Labor Party's
tax approach is that it is anti-incentive. There is no incentive
for people to save. Retired people get nothing out of it and you
have very savage withdrawal rates and high marginal tax rates for
family incomes between $40,000 - $60,000 a year. And there are loads
and loads of families with two incomes who are at that kind of level.
Now that is the social criticism I have. The economic criticism
I have is that he has not reformed the system. He has left the existing
wholesale tax system in place, he's just played at the edges,
there is no boost for exporters, there is no help in reducing business
costs. And we are just stuck with this same old wholesale tax system.
Now Neil we have been talking about this for 25 years, not you and
me, but the community. And everybody agrees that you have got to
reform the tax system, and what's their reform? They are going
to take wholesale tax off orange juice which they themselves imposed
in 1985. I mean, big deal.
MITCHELL:
Okay we'll take some calls, there are a couple of other questions
I would like to ask if you have time. Harry go ahead please.
CALLER:
Good morning Prime Minister. Federal and State government pensions
are tied to a so-called basket of goods. Generally most pensioners
think that that basket of goods does not reflect inflation rates
of the things that they are normally interested in. Is that basket
of goods going to be reviewed and also where is it possible to get
a copy of this secret basket of goods?
PRIME MINISTER:
Well, I don't think it is secret Harry. If you'd like
to leave your name and address with Neil's programme, I'll
arrange for some information to be sent to you by the statistician.
But it is compiled by the statistician, it does include things that
people normally buy at the supermarket, of course it does. It does
include food, and it does include clothing and it does include rent,
and all the other things that people are concerned about.
MITCHELL:
Just on rent Mr Howard, the GST will put up rents on public housing
won't it?
PRIME MINISTER:
Well, that will depend ultimately on decisions of State Governments
because they control public housing, we don't.
MITCHELL:
It's certainly happening here.
PRIME MINISTER:
Well, it can't be happening there at the moment, because it
hasn't come in.
MITCHELL:
The Government has said it will happen because public rents and
public housing are linked to the income of the pensioners. Say you
give them 4% on the compensation package, they'll lose a quarter
of that when their rent goes up.
PRIME MINISTER:
Well, ultimately it all depends on the decision that is finally
taken by the State Government and it depends on a whole lot of trade-offs
and it depends upon the calculations about the impact of the package
on State Governments but the rent, the tenant won't have to
pay the GST on the rent, it is what called input taxed, in other
words it is free of, there is no GST on the rent itself to be paid
by the renter and the question of whether there is any adjustment
is something that has got to be determined by the Government, the
State housing provider.
MITCHELL:
Michelle go ahead please.
CALLER:
Hi Mr Howard. I'm a Liberal voter, but at the moment I desperately
need you to convince me not to vote Labor. My husband earns $33,000
a year, I'm on $5000.
PRIME MINISTER:
Do you have any children?
CALLER:
We have a 10 year old daughter, and from what I can tell we are
going to be worse off. I was ready to vote for the GST a few weeks
ago, and now I'm really frightened, but I don't want to