EMBARGOED UNTIL DELIVERYJ~~~ PRIMES MAINISTE
TRANSCRIPT OF INTERVIEW WITH MAX WALSH 10 APRIL 1985
E 0 E PROOF ONLY
WALSH: Prime Minister, the latest reports suggest the
Australian dollar is climbing up off the floor. Is this
due, in part, to official intervention in the interest rate
PM: It is very difficult in this area of the value of the
dollar to attach weights, Max, to' all the factors involved.
Simply, let me say this, that when we abandoned the monetary
targets, for what we believed at the time were good and
suff'icient reasons. I think there was some perception in
the markot that this was goingy to mean somne weakening in
monetary policy to the extent that that perception was there
that would have been one factor perhaps to what happened to
the value of the dollar. I think it has become increasingly
evident in recent days that there has not been any weakening
Of. monetary policy and that therefore this may now be
reflected as you suggest in the value of the dollar. But I
guess there are a number of factors. You are dealing with a
very, I think, irrational sort of market these issues.
WALSH: Are you surprised that this second fall of the
Australian dollar, ) bviously at one stage the
fundamentals suggest there should be a fall. Are you
surprised?
PM: That it went further?
WALSH: Yes.
PM: Yes, I think we were all surprised, and a little bit
concerned Max, that it went beyond what I think..
indicated it was appropriate. But I think the community
will appreciate the-fact that the Government hasn't panicked
about this. And we haven't panicked, Max, I think for what
you would regard as good reasons, and that is that the
fundamentals of the economy are strong. And further
evidence has come out this morning, and the reports show the
continuing strength. There is no doubt that the Australian
economy, through this financial year ' 84-185, is going to do
even better than the quite optimistic forecasts that vieze
put forward at Budget time. I think that is becoming more
and more obvious and it will reflect it.
WALSH: B ut whtn the exchange rate behaves, as you put it,
in a way adverse to that which the fundamentals suggest,
that suggests there is a lack of confidence on the part of
the market.
PM: That is one of the reasons. And I think
WALSH: Can I put to you in that case just a number of the
reasons that have been advanced that there is a lack of
confidence. First is * of course that you have alleged to
have lost control of monetary policy, now that is not
the case as demonstrated by the way in which interest rates
. have moved. And in fact interest rates have moved up in
Australia quite severely and substantially of late.
PWM: TherWeA has obLeehnw naS mioviceeo nHupwha curfds,: e afly edrs. rmRo meeBsa aecnrtkvio
in the market place.
PM: There has obviously been a degree of action there--n the
market place, yes.
WALSH: The second area where there has been some concern
that you have perhaps lost control of your own economic
policy by the actions of the Caucus.
PM: Well, that is of course unfounded. I mean, you are
right in putting forward..
WALSH: these are the arguments being advanced. And you
know that that followed the defeat in Caucus of Senator
Walsh's suggestion perhaps tertiary fees should be
reintroduced. It was seen as Caucus flexing its muscles in
the budgetary making prccess. Now, it was also be-en
suggested that you should issue an economic statement to
reassure people this is not true.-Is there any prospect of
yotfdoinC this?
PM: Well, let's get the perspectives in the order in which
they seem right. Paul Keating and _ 7have been at the
forefront of the Government's economic policies from the day
we came into office and we remain in that position, have
always had the view that it would be possibly appropriate to
make certain announcements on the budget issues prior to the
budget so that we could get the full year revenue benefits
of an announcement being made and operative before the
commencement of the new financial year. So there were very
sound reasons for doing that. So if we do make such a
statement or a series of statements, which is very possible,
then it will not just be for reassurance or stroking
considerations, stroking the market. Although I accept that
r. flfl , fl
it could be an important part of strengthening the market
perceptions about our dire. ction:-of economric policy. But
there will be intrinsic reasons why it ii-akes good sense to
make some statements, statement or statements, prior to the
budget. WALSH: So that would of course be before Parliament rose,
it rises about mid-May. But another area where I believe
there is some concern, is the whole debate about tax reform
and the proposed summit, and the belief that the Government
PM: On that, I don't want to avoid Could I just make
one point in regard to the area that you have just appeared
* to lead. I want to assert as strongly as I possibly can
that the appropriate processes of giving effect to our
budgetary strategy, our general economic management and our
fiscal approach is firmly within Government control. It is
true that there was that incident in regard to the idea that
Peter Walsh had in regard to tertiary fees. It is
unfortunate, I think, that the ERC, Expenditure Review
Committee, was not able to deal with that fully and that
there was a discussion and a decision in the Caucus. That
was somewhat unfortunate. But I can understand that there
was some concerns about this issue. But I want to make it
quite clear that the Government is firmly in control of
budgetary policy and I want to if I may use the
opportunity of your program, to assert that the Government's
commitment to the trilogy and to reducing the budget
deficit is still in place and will be achieved.
WALSH: If I could just take up on what you said there, you
used the word unfortunate to describe the process by which
Caucus prevented it from being considered first by the ERC.
Can you stop that from happening in the future?
PM: I believe that that is not a thing Ithat will be
repeated.
WALSH: Do you feel that your Caucus colleagues are aware of
the disquiet that that is likely to cause in the monetary
markets, that sort of behaviour?
PM: I think that they recognise the difficulties if that
were to become a practice and it won't become a practice.
WALSH: Now another area which is vainly exercising the mind
of the money market,-especially I suspect the people
overseas, is the entire debate on the methods being
approached to tax reform. It does appear as though the
Government has a number of views on this, that there are
people in the Cabinet with quite diverse views. And would
you accept that it wouldn't be surprising if people abroad
hearing a Labor Government in Australia talking of tax
reform to be a wee bit apprehenisive?
PM: No, -I would be surprised if r-ational decision-makers in
the market were upset by the process because after all the
realities are, not only for Australia, but for any western
country, where you are approaching reform of your fiscal
system. Firstly, that there are going to be widely diverse
views within the community and within any government as to
all the elements of reform package. That is perfectly
natural, it is what happened in every other country where
they have considered tax reform. May I say both before the
event, and after having just been to Canada, you know the
value to approach this in the early 80' s of substantial tax
reform. I had arguments about it beforehand and I certainly
had a lot of arguments about it since. So that is a normal
thing. The second thing to say, is that when you are
talking about tax reform there is a range of considerations
you have to take into account. You have to take into
account economic efficiency conisiderations. You have to
take into account equity considerations and one of the
unfortunate facts of democratic life is, and also I guess
one of the beauties of democratic life, that you can't
always meekly reconcile considerations of economic
efficiency and of equity. And what is happening, openly in
this country, is that the debate is going on. The mind of
the Government is not closed. The summit is not going to be
a charade. By the time we go there there will have been
distributed widely in the community, particularly the
participants, a white paper which will set out essentially
two things, Max, the inadequacies of the existing system,
and a range of packages which will be directed to making
people think about alternative ways of how we can have a
better tax system. We will not go there with our mind
finally made up. We will want to get the benefit of the
input of people. Now that seems to me, Max, to be a process
which should be welcomed, because it is more likely out of
that process that you are going to get a system which is
economically as efficient as possible, but also matches
community concerns because ultimately what the Australian
community must want and what international people interested
in Australia must want, is to see the emergence of a system
which has as much community support as you can possibly get.
WALSH: It has been suggested that you are going rather cool
on the idea of a major tax reforms?
PM: Well, I have noticed over the years media
interpretation of Hawke's position, they have been wrong
much more often than they have been right. I don't think
they are changing their habits on this occasion.
WALSH: Well, would you think the strong prima facie case
still exists for a shift away from direct taxes to indirect
taxes?
PM: I have always said that in regard Lo what this
Government,. or for that matter an-government, should do
about tax reform, is that they have gct to have a mix of
considerations of economic efficiency and equity and public
acceptibility. It is a nonsense to create a situation which
is not going to have general acceptibility because you will
create chaos, confusion and uncertainty within your economic
and social community. And so I say that there are
arguments, I don't in any sense resile from the arguments
that there are for a substantial lessening of the direct tax
burden. And if you are.-going to do that, we have roughly
given levels of expenditure, then you have got to have
revenue to meet that requirement. Now you have also got to
be sure, Max, that if you move that way that you can have
adequate compensation mechanisms for those who will be
adversely affected by the regressive, potential regressive,
of a change to indirect tax. And we have got to be
satisfied that we can for all significant sections have
adequate protection mechanisms. So all those things have
got to be taken into account.
WALSH: When would you expect that the Australian electorate
would have a fairly clear idea of your intentions,
immediately at the conclusion of the summit?
PM: Not immediately. I wouldn't think immediately at the
conclusion of the summit, but in the not too distant future
after that because you have got to then move from the stage
of public discussion and the government informing itsel. f as
to what is appropriate, you have then got to move to the
stage of getting legislation iLn place to give effect to
changes. So I would think in a relatively short time after
the summit we would be starting to do that.
WALSH: Prime Minister, if I could just return to that
central theme I was stating. The areas of concern perhaps
undermining confidence in the Australian dollar. Perhaps
the most difficult and delicate is your relationship, ' Che
Government's relationship with the ACTU and the Prices and
Incomes Accord. As your former Secretary of the Treasurer,
John Stone, pointed out, as others have, that the commitment
of the Accord to indexing wages combined with a depreciating
dollar threatens an inflationary spiral. Do you concede
that that relationship exists in theory at least?
PM: Yes, sure. But let me make these points Yo u
mentioned commentators, you mentioned one in particular.
Many of those commentators, including the one in particular
that you mentioned, when we came to office and we talked
about the concept of the Accord, were full of scepticism and
and derision. The facts show that their scepticism and
derision have been not only ill-founded but totally wrong
because the Accord has been of central importance in
producing the very magnificent economic performance that we
-r. t . Z~ tL3C~ Z~ fl~ La?
have witnessed in this country. I don't think there is a
commentator now within Australia or externally whc disputes
that fact.. Now, within the processes of the Accord there
are, by definition, provisions for consultation between the
Government and the Trade Union movement. We have made it
clear that the Government is prepared to adapt its economic
policies to meet the requirements of the existing and
foreseeable economic situation. That is how we have
operated to this point, that is how we will operate into the
future. Now, by the time the first question arises, that is
the September case for the 6 monthly indexation, you will
then have the March and the June quarters. Now, obviously
very little impact in the March quarter of th. e devaluation
processes, some in June. Now we will be monitoring this as
we go up to Septem~ ber and it would be quite illogical and
politics-and bad economic management in April to say in
respect of September exactly what you are going to do
because you need to know as far as you can what has been the
impact of the devaluation on the CPI movements that will be
an issue then. Let me say this, Max, that I think according
to my own reasoning and the discussions I have had with our
advisers that I believe that by then it will be of very
small dimension. It may be that as you go into the later
period, in the next year it will be a further six months,
that it would be of greater dimension, and that you would
feel more pressure to adjust your position to meet that. I
simply wai-d to make this statcment unequivocally to the
business community, the financial markets of Australia, this
Government in 1985 and beyond will continue the policy that
it has very successfully followed through the first two
years of Government and that is that we will make the
decisions which are necessary to ensure the economic welfare
of the community. We are not going to preside over a
situation where the unquestioned benefits to the Australian
economy of the devaluation that has taken place, and that is
those benefits that we remind viewers are not simply the
obvious one for farmers and miners in the export markets,
but they. are very considerable benefits for Australian
manufacturing industry. It should lead to a significant
increase in activity. We are not going to allow those
bene'fits to be dissipated by inappropriate decisions in
other areas of policy.
WALSH: I don't think I do Mr Crean, the Vice President of
the ACTJ, an injustice when I say that he is quoted as
saying virtually that the indexation factor in the Accord in
non-negotiable, and you say it is.
PM: WellI I say that the appropriate economic policy stance
of Government is something under the Accord which is
recognised as being necessary for the government to be
taking into account, that is by definition, but also
something which it is appropriate for government to discuss
with the trade union movement at any given time. We will do
A. ~. v^ CW T
that. No only in regard, may I sey, i i regard to
indexation, if we adjudge ! t necessary. But let me just
parentheti-cally make this point, don't let th~ e market, the
financial market or the economic community of Australia,
make the mistaken assumption that it is indexation which
alone impose a problem in regard to wage movements. If you
didn't have wage indexation, it is arguable beyond rebuttal,
that if you had the free market situation, the movement in
wages would be very, very much higher than with indexation.
So what has got to be done is to balance the benefits that
the Accord and indexation, at the same time take into
account as we will, the deleterious effects there may be in
certain circumstances by not going too far. The alternative
which would be much higher wage movements in the absence of
indexation. Now the other area of course in which we will
take into account economic requirements and including the
impact of devaluation, is in regard to the productivity
case. I think there is a perception out there in the
market, Max, that there is a productivity case coming up
later this year which is going to lead to some-three per
cent increase in labour costs out of that productivity case.
I don't believe that that will happen and certainly the
position of the Government will be that any improvement in
conditions associated with the processing of a productivity
type case approach before the Commission will need to be
phased in over time so that it corresponds with the
emergence of the actual productivity. You can't be talking
about in 1985 giving some increases on productivity grounds
to productivity which occurred in the past.
WALSH: Now you hope and expect that when all your arguments
as presented here today are understood by a rational market
that the present position of the Australian dollar will
improvie vis-a-vis the American dollar?
PM: While I don't regard myself as being the determinate
person as to what happens in the market..
WALSH: I was suggesting that they understood and appreciate
the arguments
PM: Yes, I do say this, that if they do understand all the
arguments that I have put then there would be an even
further improvement. it is coming up again. But I believe
that the fundamentals of the Australian economy are stronger
than virtually any other economy in the wt.' rld. There is
more solid reason for continuing optimism about the
performance of the Australian economy than just about
anywhere else. If you look at the fundamentals of growth
and employment and inflation and of economic strigency in
policy making and the constraints imposed upon itself by
Government, I think we can compare ourselves more than
favourably with just about any other economy in the world.
WALSH: Prime Minister, just on a disconnected subject. The
visit next week of the Secretary of the Communist Party of
C~ iina, Miu. Yaobanq, it is being reported that there will be
no breakthrojugh in your proposed iron and steel plan with
China where they supply iron ore from us
PM: This is another example of where the media again, for
reasons which I don't comprehend, either does not understand
or doesn't wish to understand..
WALSH: If you could just tell me the actual situation.
PM: The situation is quite clear that in the 12 months
since my meeting and discussions with Premier Zhao in
Beijing, February of last year, there has been enormous
* progress. Now what we are talking about in particular in
regard to* Western Australia are two negotiations. One in
regard to the opening of the joint venture at Channar, that
is the iron ore, which I want you to understand and I think
you understand, will be China's first joint venture outside
of China. Now they are determined and in my view perfectly
understandably, they are determined that this is not just to
be seen as the finalisation of that venture, but it will be
looked at by them and by others as some sort of model, and
it will be examined very-closely in regard to other possible
joint ventures. So they are determined that out of ' the
multitude, the hundreds of details that are involved in such
a complex negotiation, that it be done to their
satisfaction-Equally, at our end, the Australian
enterprise has got to make sure that its interests are
protected. Now, most of the negotiations have been
finalised. From the interests of both sides and we are
quite relaxed about this, totally relaxed, we believe that
it should be finalised in a way which is to their mut'. a1
satisfaction. That will occur.
WALSH: It will be consum'~ ted. The second one, however, is
the reopening of the Kwii'ana.
PM: The reopening of Kwinana. I make a lot of the same
comments there that,'
WALSH: With the same degree of confidence?
PM: I think with the same degree of confidence. I believe
that it is clearly going to be a venture that is in the
interests of both China and of Australia in general and the
company in particular.
WALSH: But it won't be a joint venture now?
PM: That's not a, well it was never t alked about as a joint
venture in the sense that Channar is. But equally Max there
are a great deal, the majority of the issues have been W
settled. There are still some that h-iven't. * Now it is much
more sensible, and I think the Chinese more than any other
nation have a good sense of time perspec. tives, it is much
more sensible that you work something out which is going to
be certain of satisfaction to both sides over the long
period of time for which it will be operated. I am more
than relaxed about the relationship between us and more than
relaxed with I am certain of the consummation of a number of
deals, not merely in the iron and steel industry, but
agriculture. We are going to have an enormously fruitful
relationship with China, with almost a quarter of the
world's population, rising standards of living, a revolution
in their approach to economic policy making which is opening
them up to the West. And there is no country, I have said
this before and I will repeat it here, there is no country
in the world which has a better relationship with China
than, I believe, than Australia. And we, and they, will
benefit from that.
WALSH: Prime Minister, thanks very much.
PM: Thank you very much Max.