PRESS OFFICE TRANSCRIPT 16 AUGUST 1978
INTERVIEW WITH VINCE SMITH, 2UE
( Questions are not on tape)
Question: Prime Minister:
Well, I can guarantee one thing. If inflation and interest
rates don't come down, you will never have economic recovery
and unemployment will stay high or get worse and I would
guarantee that absolutely and you've only got to look at
what's happened in country after country overseas which have
prematurely given up the fight against inflation. I heard
you saying a moment ago that you thought it was a gloomy
Budget. Well I don't think it is for one minute because
most Australians know quite well that the services Governments
provide have to be paid for and if we are not honest about
it and aren't prepared to tax people for what we are providing
by way of services or benefits or pensions or whatever, then
the only other way of doing it, is basically by going to the
printing press and we all know that that leads to more
inflation.
Question: Prime Minister:
Well let me respond to that for a moment. The Budget papers
indicate a rate of inflation, and it's a Treasury estimate,
not ours and that might give it more credibility in some
people's minds because it is a technical estimate, of 5 percent
by June or earlier. Now, at that time, there are going to
be very few major countries that have an inflation rate lower
than ours. The United States certainly won't, Canada certainly
won't, Germany will be below us, Japan probably will, but
Britain and France and Italy will be significantly above our
rate of inflation. Now that means that Australia starts to
become more competitive, all Australian industry starts to
become more competitive, not only in our own market but also overseas-
and if our industry becomes more competitive that is
good for jobs. But the other side of that inflation story
is interest rates and there has been applause over the last
three or four months in the movement downward in interest
rates because people were waiting to see the Budget, but of
all the criticisms I have noted this morning nobody has said that
this Budget won't help in the fight against inflation, they
all admit that it will and they also admit that it will help in
the effort to get interest rates down. I have used these
figures before but for the average young couple borrowing
to build or buy their home at say $ 20,000, $ 25,000, a two
percent fall in interest rates is ten dollars a week. A fall
in interest rates is assistance to every business, every small
business and if you want to talk about a stimulus to the
Australian economy so that there will be more activity, too many
people say well if there is a stimulus that means the Government's
got to spend more, the Government's got to do more. / 2
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Prime Minister: ( continued)
I just don't agree with that at all because I think that
the best stimulus this economy can possibly have is by getting
inflation down to that goal, objective, of 5 percent and at
the same time getting interest rates down.
Question: Prime Minister:
But you're missing the point again you see, and people just
don't see it. You seem to think, or other people seem to
think that you can have less unemployment if a Government
spends more money. Our predecessors showed when they
increased Government expenditure 46 percent in one year,
when unemployment rose by 200,000 in that very year and that
was because of inflation and because of the damage done
to the economy. Now, in circumstances in which we are in,
the best stimulus you can give to an economy is to get
inflation down and interest rates down and if that happens,
then you are going to get businesses with one proviso that
I will come to in a moment, employing more people and
undertaking greater activity. I don't believe for one moment
that the answer to our problems is to try and get more people
on the Government payroll.
Question: Prime Minister:
The people in jobs are going to have money and any suggestion
that they are not is just sheer nonsense. Let's take a
levy, a Medibank levy, payer who won't have to pay the levy
after a little while. He is going to be significantly better
of and if he wanted to ensure up to the Medibank Standard Rate
that would cost him significantly less than the levy.
Certainly I know that beer and cigarettes are going to go up
but they are only going to go back to the real level that they
would have been in excise terms of three or four years ago
and again, if you look at petrol, sure the price of petrol is
going to go up, but when people come to buy a new car they
will save, depending upon the price of the car, but $ 6,000 or
$ 7,000, about $ 500. Now that $ 500 will pay for many many years
the additional cost of the petrol as a result of these moves.
Let me just make the point again, it's not shortage of cash in
this economy because you've only got to look at the way the
savings banks have been attracting larger and larger funds.
Question: Prime Minister:
And they've not been getting out into the community because
inflation has been too high, and interest rates have been
too high. It is not a shortage of cash. You get inflation
dlown, interest rates down. . Surely you would agree that if
the interest burden of building a new home was cut by $ 10 a week
that is going to be significant in helping to get the home building
industry healthy, isn't it. Well? A 2% fall in interest rates
for home purchasers does mean $ 10 a week for the person on 3
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Prime Minister: ( continued)
an average loan. All right, we haven't got there yet, but
the permanent building societies have reduced their rates
half a percent and this Budget, as everone agrees, will assist
in the movement downward for interest rates further and what
we want is a steady and sustained move down and we will achieve
it, especially as we get nearer that inflation rate of
percent. And then the savings to that home purchaser become
not an objective on the horizon, they become a reality and
that then starts to mean more homes being built and more jobs
in the building industry. It's so easy to fudge these
problems. It's so easy to pretend the difficulties in the
economy don't exist. It is too easy for Governments just to
spend more money and not tax for it. But the truth, and
I believe that the people of Australia will respect the
honesty of John Howard's Budget.
Question: Prime Minister:
Good heavens, no. The local oil companies have had their
returns kept down to very low levels and that had inhibited
oil search in this country. Under our predecessors oil
search ceased. It is starting to build up again because they
are getting a greater return but overwhelmingly the only way
to get oil to world parity and at the same time for the
community to get the benefit of it as the commnunity will be,
is to do it in the way we have and you've got to understand
also that the oil that we you know we're not completely
self-sufficient in oil. A good deal of oil already comes
in and we've got to pay world parity price for that and
this is not just a measure to raise extra revenue, it's also
a measure to get a proper allocation of resources. I don't
think that people would want us to get into the problems
that the United States' economy is facing quite specifically
because they haven't got an energy policy and as consequence
of that they've got an oil bill that is quite unrealistically
high. Question: Prime Minister:
Two things on that. If you've got any particular proposal
for tax avoidance or any of your listeners have, that they
think we are not pursuing, then I am quite certain the
Treasurer would like to look at that and over the last six
to nine months this Government has done more about cutting
off, stopping, tax avoidance loopholes than I think any other
Government in history. We'll continue with that path, but
you've got to look at the need for additional tax, I think,
against the circumstances in which it came about. At this
time last year tax, underestimated tax refunds by $ 350 million
and they overestimated the tax that would be collected from
non-PAYE taxpapers by $ 400 million. That significantly lowered
the tax base for the starting point of this year and if that
hadn't occurred, the tax surcharge which will run out at the
end of June, 1979, would not have been I think that would not
have been necessary.
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Question: Prime Minister:
Well,' that's a great offence to the Treasury and tax officials
that provided them. They would provide figures to the best
of their technical knowledge and expertise and I agree that
there were significant mistakes in the estimates last year
but to suggest officials of the very high reputation of
Tax and Treasury would do that for a political purpose, I think
is a great slur on the character and integrity of public
servants forwhom I've got the highest respect.
Question: Prime Minister:
No,, I don't think we can, because we don't know what the
Arbitration Commission is going to do and one of the things
the Government has said very plainly is if,-wuage increases
are to continue at too high a rate, unemployment will stay
too high. It's worth noting that average weekly earnings
to the twelve months to June increased by more than the
Consumer Price Index and that's worth noting. That was following
a period in which average weekly earnings in the metal industry,
for example, have exploded by over 50% in a two-year period
and we were in a position in which wages had grown so much,
and profits had fallen so much that industry just became
unprofitable. Now we've got to get back to a situation of
greater profitability for industry and that's the way real jobs
will be provided in Australia. We can be assisted in that
if there is some degree of restraint in wage decisions and
we spelt out in the Budget very clearly the link between wages
that are too high and unemployment and the people who are
putting the case for increased wages need to understand that
they've got one of two choices between them. They can argue
for ever higher wages for those who are now in jobs, at the
expense of those out of jobs; or they can show some restraint
in additional wage claims and assist in the general national
objective of reducing the number of unemployed.
Question:
Prime Minister:
Whether sack is the right word or not I would doubt because
the control over staff ceilings we've achieved by wastage and
resignations and we would propose to achieve our staff ceiling
objectives in those ways. But again, there is not going to
be any restraint or commonsense in this country if the totality
of the Commonwealth Public Service and all the State Public
Servants and the Governments in charge of them say look, it
doesn't matter what wages are, because no matter how much they
go up, the Government will have to pay the wages, it will have
to go on expanding the Public Service and will have to either
tax the general community more to meet that bill or print the
money to meet that bill. Now, its time everyone understood
that that is an utterly irresponsible attitude.
Question: Prime Minister:
No, I think you're jumping to conclusions in that because
I'd reject what you've just said. Medibank was a concept
in relation to universal health care; universal health care
and a more efficient and stream,, lined form remains and albeit
at les-s direct costs to the average citizen. Medibank was
nothing more than a concept of universal health care. Now
you need to compare Medibank with what was there before when
you had a voluntary system which wasn't universal but which
did cover 93% and 94% of the total Australian community and
are you going to say to me that Medibank, as a name, is the
Health Services Commission and the Commonwealth Employees, what
do you mean by Medibank? Isn't it universal health care?
Question: Prime Minister:
Yes, but this is at a base of the Government.' s involvement
for every citizen and that concept has not altered.
Question: Prime Minister:
There is universal health care for every person in this
community. The Government provides a basic level of health
care for every person, whether they take out insurance or
not. Question: Prime Minister:
On the pension adjustments, the reasons for that are very
plain indeed. When you have inflation running at 15, 16 or
17% as it was when we came into office, six monthly adjustments
were certainly necessary to maintain equity for pensioners.
Now with inflation running at seven or eight percent and heading
towards that five percent, annual adjustment will leave the
pensioner much better off than he would have been with six
monthly adjustments and inflation running at two or three
times the present rate. Our commitment to pensioners is
very clear and we protect them but it needs to be understood
that the reduction of inflation protects pensioners just as
it protects and assists all other sectors including the business
section of the Australian community. And what was your
third point?
Question: / 6
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Prime Minister:
And we have brought taxes down. We brought taxes down on
the first of February to the extent of $ 1.4 billion in a full
year and together of course with $ 350 million from the first
of this year for half indexation. Now, the additional taxes
of $ 560 m~ illion still leave very very substantial benefits
in the hands of all taxpayers. Its legislation that does run
out at the end of this year. It would not have got into this
position if the estimates of refunds which I mentioned earlier,
and the estimates of collections from non-PAYE taxpayers had
not been wrong at the time of the last Budget. Let me just
make one other point about this. One of the advantages of
the tax system we've introduced, and the tax indexation, is
that we said it would keep Governments honest. Instead of
be ing able to get more real revenue out of the people of
Australia through the hidden processes of inflation pushing
people into higher tax brackets, if Governments believed they
needed more revenue they would have to tax for it
and introduce legislation to do it and then justify it to
the people of. Australia. So, the fact that we have had to
collect extra funds this year through that surcharge is a
demonstration of what we always said about tax indexation;
it has forced us to bring in legislation and it has forced us
to argue and justify it and I believe that is as it should be.
Question:.. Prime Minister:
It will be written into the legislation. that it expires.
That's how we intend to introduce it. It will automatically
expire at the stated time.
Question:.. Prime Minister:
No, it can't. We've had very significant success in getting
inflation down. There has also been very significant success
in getting stability back into the economy although still too
great a movement in increases in wages. There has not been as
much movement yet as we would have liked in a return to the
profit share and obviously not as much movement in employment
position as we would like, but I think that is very significantly
related to the level of wages that are still too high. Now we
are starting to get more investment in this country and in the
end of the last financial year we were attracting investment
from overseas again for the first time in many years and I think
local'investors are also showing more confidence. Against that
background, I believe that we can state that against the position
we found it when inflation was 16-17% when we came into office
and a. situation of no confidence whatsoever throughout the
community, that there have been very considerable advances made.
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Prime Minister: ( continued)
I would like to use an example that I've used to demonstrate
the position before. It's very easy to wreck an ocean liner
by running, it onto some rocks. You can do that in a matter
of a few minutes,, but to repair that ocean liner, to get it
set sailing fair again on the high seas, takes a very long
while and when you damage, almost destroy, an economy utterly,
it takes a very long while to put it right, especially when
there are factors such as those under the influence of the
Arbitration Commission which the Government can only affect
very indirectly.
Question:.. Prime Minister:
I believe that the outlook is changing for many sectors of
the Australian community and changing very much for the better
and I also believe that there are many sectors of the Australian
economy that already feel that they are a part of a
prosperous community. All people have got a role to play in
that and they've got a need to be responsible, to understand
the Government can only provide, in terms of services, what
Governments are prepared to tax the people to pay for, otherwise
Government becomes irresponsible and if the people accept
that, they tht-mselves are irresponsible. I believe that the
generality of the policies that the Government has followed
are understood by the Australian community, maybe much better
understood than some of the headlines you get in the newspapers.
Question: Prime Minister:
I was making the point that I think many sections of the
Australian community already believe that they are in that
position. Not all, obviously, and not those who are unemployed
and who want work but we'are going to see an increase in
investment, we are going to see an increase in overseas and
Australia as a great supplier'of natural resources while the trading
world is going to be facing very considerable difficulties
I think for quite some years ahead, Australia under this
Government's policies will be well placed to take advantage
of whatever trading opportunties come, whatever investment
opportunities come and also well placed to withstand the
difficulties of world trade. The reasons for that are
that we are a resource supplier and the world needs; resources
and to the extent that we have inflation under the world
average, under that of other countries, to the extent that
we offer stability in Government and in policy, we will attract
more than our fair share of resource development and that will
create jobs and activity, throughout many parts of Australia.
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