JjAUSTALA fr
PRIME MINISTER
E. O. E. -PROOF ONLY
TRANSCRIPT OF PRESS CONFERENCE 18 JUNE 1985
PM: Well good afternoon. Over to you.
JOURNALIST: Mr Hawke, are you disappointed by the way in
which the big business and industry groups have reacted to
the idea of a voluntary code of conduct to Australian firms
in South Africa?
PM: I'm disappointed at the initial reaction. We will have
fuirther discussions with them and I believe that out of those
discussions we should be able to achieve a basis of operation
that will be acceptable. But when you commence anything new
like this there is always going to be some reaction. I am
not surprised.
JOURNALIST: Mr Hawke, you said a week or so ago that the tax
package was open to negotiation and possible changes. Do these
possible changes include the level of the consumption tax and
the question of exemptions?
PM: Well, when you have a summit and you'say you are going to
invite the community through its representative organisations
to raise issues in the White Paper, then you do that without
reservation. I would simply say this taking your two
points in order. As to the level of the proposed broad based
consumption tax, it has appeared to us that it needs to be of
that order in conjunction with the other elements of the package,
if you are going to be able to give the significant cuts in
direct personal tax which we believe are necessary to achieve
more realistic levels of contribution from peoples' wages and
salaries to tax. On the question of exemptions, all the
evidence that we have been given from overseas which deals
with o~ u own consideration of the issues suggests the
inappropriateness of exemptions. It is not firstly, the most
efficient way of dealing with the quite legitimate problem
which is in the minds of people when they raise it. That is,
if you talk about food in particular, it goes without saying,
and was recognised from the beginning that of itself, tax on
food is regressive. But if you eliminated food from the broad
based consumption tax at the level which has ' been spoken of, it
would cost you $ 1.6 billion. Now, that would mean that higher
income groups in the community would escape contribution,
including that significant proportion in that region who virtually
pay no tax at all now. So it wouldn't be the most effective way
/ 2
of dealing with the problem of the impost of the tax on low
income people. You address that problem, we believe, more
effectively in the way that we have talked about that is
the combination of the tax cuts and the provisions for more
than compensation through the social security welfare system.
And of course, there are the other category of problems that
are involved as well. Once you start making exemptions, then
that immediately imposes significantly greater difficulties
for the tax collectors. That is at the level of the retail
shops and so on you have got to have a more complicated system
of cash registers and so on. And secondly, you start down the
track inevitably that has plagued this country in the existing
area of tax on goods in the wholesale tax area where you have a
totally incongruous, inequitable, logically unjustifiable
mish mash of exemptions and inclusions at different level of
tax at the V7 the 20% and 32 And the next point follows.
That once you start to allow one area of exemptions, then of
course you get pressure groups saying, well, you have exempted
that item. There is a very strong case for exempting this item.
And governments then are down the slippery path which has resulted
as I have described in the totally unrealistic existing system
of tax upon goods in the wholesale tax regimen.
JOURNALIST: Mr Hawke, there has already been widespread reaction
to the Government's preferred position on taxation reform,
notably from the business community and the ACTU. In the light
of that, are you satisfied with the level of debate so far.
And more particularly, are you still confident you are going to
be able to sell this package' to the community?
PM: Well thanks for that question. I think it is an embracing
one and very relevant. Firstly, am I satisfied with the level
of debate. Yes. I think that by and large it has been a
sensible debate. Inevitably, as one would expect when you are
talking about tax, there has been the expression of particular
interest group points of view. Naturally, people tend to be
somewhat selfish and self-centred when they are considering tax
reform. I am neither surprised nor disappointed about that. it
is precisely what we expected. But importantly, I believe that
the debate has not damaged the essential structure of the package.
There is nothing emerged which has been put up as an alternative
which would meet all the objectives of the Government's
preferred package. I am indebted to the way in which the media
generally has faciliated the discussion. And T believe that in
the period which still remains between now and the summit that
you will have a situation that the community will therefore be
well served at the summit by the discussion that will have taken
place till that point. I believe there will be a clearer
appreciation of the essential objectives of the Government's
approach. I think there will be a clearer understanding of the
way in which the compensatory mechanisms are calculated to
deal with, and I believe more than deal withf-the problems that
would otherwise be there. To the second part of your question,
do you think we can sell it. Well, I hope so and I believe so
because the one thing, if you like, that remains untouched in
any way at this stage, is the conviction, I believe, of the
overwhelming majority of the community that the existing
system is finished. It is unfair. It is inefficient. And
it is totally complex. And increasingly it is operating in
a way which is becoming more evident, I believe, to the
Australian community whereby more and more of our fellow
Australians in the high levels of income are avoiding virtually
any payment of tax at all. And that must mean, I believe,
that a decreasing number of Australians and that will mean
the ordinary wage and salary earners will have a greater
burden imposed upon them if no change is made. Now, I think
that understanding is increasing. And I therefore am optimistic
that in the period between now and the Summit, at the Summit,
and the period after the Summit, we will be able to persuade
the Australian people that the preferred approach suggested by
the Government is the best way to go.
JOURNALIST: Mr Hawke, given that exemptions are virtually
out, is there any sympathy for making some change to Option C
so that lower income earners will receive a greater net benefit
than Mr Keating has outlined?
PM: Well, this is one of the areas that is open to discussion.
and you will note from your reading of the White Paper, the
indications of a disposition on the part of the Government to
consider further ways in which some small groups who may not be
encompassed by the compensation packages may be able to be
covered. And how some already covered, may be able to be better
covered. We have not said that what is set out in the White
Paper represents the last word in terms of compensation. And
certainly I can say this on behalf of the Government. If out
of the process of discussion between now and the Summit and at
the Summit itself, there emerge viable effective, equitable ways
of making the compensation packages more effective, then the
Government will be very very well disposed towards embracing
them.
JOURNALIST: Mr Hawke~ are you concerned at all about the
inflationary pressures building up in the economy,
particularly the projected revision for next financial
year of the inflation rate of seven per cent, and in
the light of this 1 given that there are pros and cons
both ways on this, will the Government be tempted at all
to consider some sort of reduction in the 12.5% rate
mentioned in option C in order to minimise these inflationary
dangers. PM: There are two points to make about that. Firstly,
of course, we have from the very first day in Government
indicated that the control of inflation has been one of
the primary objectives of Government economic policy
making. We have translated that concern into effective
action, and we have, as you know, more than halved the
inflation rate that we inherited. So yes we are always
concerned about inflation because inflation is damaging
in terms of your competitive economic position internationally,
And it is disruptive in terms of equity in the community
because those on the lowest levels of income, whether it
be as wage and salary earners, or as beneficiaries through
the social welfare system, always have most to fear from
inflation. And to the extent therefore that there are
signs of some upward movement inflation, yes we are
concerned and our economic policy making will be directed
towards containing those elements and pressures within our
economy which could, if not properly regulated, add further
to those pressures. Now coming to the second point. You
asked whether as a result'of those signs of potential
inflationary pressures, would there be an argument considered
by the Government to think about a lesser level of a broad
based consumption tax than the 12.5%. I believe not.
Because what you must understand is that the level of
the proposed broad based consumption tax has been reached
in very large measure, in terms of trying to maximise the
degree of relief that Government will be able to make
available to wage and salary earners with regard to the
direct tax that they pay. In other words if it were a
lesser level of broad based consumption tax, say 10% or
something less, then Government would have a lesser amount
of revenue to make available for the purposes of reducing
direct tax. -Now this, I believ'e is relevant to the question
you asked because wage and salary earners are not simply
going to leave themselves unprotected against an increasing
erosion of their earned income by deprivations of tax.
It is the case, as you know, that now that 46% rate impinges
around the 19,000 level,, and in the absence of change it
would be biting in before the end of this Parliament at
about 17,000. Now if people are paying more of their earned
income in tax, then I believe that in the absence of
significant reform they would be attempting to protect
their disposable, real disposable, income position by
more pressures for increases in money wages. And so if
you're going to get the full anal'ysis, and proper appreciation
of the relationship between proposed tax changes and inflation
it's no good simply saying a 12.5% broad based consumption
tax has a 6.5% CPI effect. A one-off effect that would wash
out within a year. If you're going to do the analysis
.3properly you have to say well, is it not likely that if
you don't do something significant to reduce the direct
tax rates will there not be wage pushes to try and maintain
or improve the real disposible income position. So its
our assessment, taking all those factors into account,
* 1 that we believe, we've pitched the proposal at the right
level.
JOURNALIST: Prime Minister one of the arguments of the
business community is tha . t you could fund a reduction
in the rate of the broad based consumption tax, through
further cuts in government spending, still get the same
level of income tax cuts but reduce the CPI level.
PM: I'm glad you raised that. Arnithere are a number of
things that need to be said about this. Firstly, no
Government has done more than this to impose effectively,
constraints, restraints upon the levels of government
expenditure through the life a Parliament. The trilogy
is a self-imposed constraint. And by now in the life of this
second Parliament, we have strongly evidenced our
commitment to making the trilogy effective, and ensuring
that the levels of Government expenditure will be constrained
within the growth of the economy. Now, we are therefore
able to base the business community, and the community as
a whole, and say in regard to that area of concern, that
is the levels, of Government expenditures, that independently
of what we're doing about tax reform, we have addressed
that issue and addressed it more effectively than any other
Government in the history of this country. That's the first
point to make. Secondly,, I would say this in regard to
the question of the reduction of the levels of Government
expenditure. We've made it quite clear from the outset
of this tax reform debate, and the processes of achieving
tax reform*, that it is not appropriate within those forums
to muddy the waters of tax reform by talking about the levels
of government expenditures. We are open in the processes
leading up to the Budget, and at all times, to representations
from the business community, or elsewhere, as to how we
should be addressing that issue. As I've said, in my first
point, we've done more about it than anyone else, but we're
still open to any submission that the business community,
or others, wartto make to us. -To be precise, in budgetary
terms, we have indicated that we will, in preparing the
Budget for 85/ 86, reduce the deficit further, and you know
we're talking in the order of 6 billion dollars. And I
believe that that's the sort of figure which the business
community believes is appropriate at any rate. The final
point that I would make is this. That in all the talk
about what should be done about the level of Government
expenditures, and having said as I have what we have done,
and more effectively than has ever been done before, I still
want to make this point. That you won't find a very
big file on the Treasurer's desk, or on mine, of detailed
b submissions from the business,-community or elsewhere, as
to precisely how existing levels of expenditure should
be cut beyond what we've done. I mean when you look at the
expenditure patterns of this Government, and indeed the
Commonwealth Government generally, you will find that there
are very large hunks taken up by areas which people really
don't want to do anything about. Defence, payments to the
States, social welfare, housing, education, you add all
those up and you're talking about a very-large proportion
of government revenues. Now if the business community
wants to, for instance, talk about the areas of government
expenditures which are of assistance to the business
community, well they should be cut back. Well that is
certainly virginal territory for them, its open to them.
And in the other areas that I've talked about, Defence,
social welfare, payments to the States. In the area of
payments to the States we ' ye exercised more rigour
effectively there than has been done before. So I repeat,
finally, as a Government we are open to submissions and
expositions about what shouldbtaone in the level of government
expenditures.. But I believe that when you get past the rhetoric,
and get down to the detail that there is not a great deal of
room for massive cuts in that area. But I believe, finally,
that the two areas should not be confused. Because at any
level of government expenditures there are the most
appropriate, most equitable, most simple ways of gathering
the revenue which is necessary to finance those levels o;
expenditure, and we should address ourselves to those issues.
7.
JOURNALIST: Mr Hawke, the Treasurer, Mr Keating has made it clear
over the last week or so that if the Consumption Tax proposal
doesn't get up that* he doesn't see much point in sticking around
in politics. I wonder whether you think this sort of attitude
assists the passage of Option C at all? Did Mr Keating indicate
to you earlier on this particular attitude he's got? And what's
your view of the Treasurer making this sort of threat to the
Cabinet before some final decision is taken?
PM: I think these things have been like Mark Twain's death
grossly exaggerated. The situation is this quite clearly. The
Treasurer has a audable and I believe understandable enthusiasm
for achieving significant tax reform. This is not some personal
Keating mission. It is consistent with the approach that he and I
have adopted since we've come to government, that if you're going
to put Australia into the best possible position for the rest of
this century to properly develop its resources to take advantage
of its position in the most dynamic region of the world, then
fundamental structural reforms have to be undertaken. Our record
already in this area, in the economic area, is quite outstanding
and I don't think I need to repeat it in detail, as you know
what's been done in the area. Financial deregulation, the
bringing in of foreign banks, reform in the area of foreign
investment, the floating of the dollar, the relationships between
the Commonwealth and the States truly historic achievements in a
very short time. Now tax reform by any definition must assume a
significant place in structural reform of the Australian economy.
Paul is unswervingly committed to achieving significant tax
reform, and in that he has my support. He is an enthusiastic
operator as well as being a very effective operator. I don't
think it does justice to him for it to be said now that he's the
little boy with the cricket bat who'll take it home, if he can't
get it his way. He is working extraordinarly hard, toughly to
achieve what he believes, and I believe, is-necessary to get the
best possible basis for Australia to go ahead to achieve the sorts
of growth -* the realisation of our capacities that's within the
potental of this country. He will do his hardest, work his
hardest to achieve that result and I believe it will be
successful. And I think it does him very considerably less than
justice to say that if he doesn't to hypothesise to say well
if he doesn't get exactly what he's been talking about then he'll
go home. I don't believe he would.
JOURNALIST: That's based on his own words Prime Minister I think
the question is whether you approve of those tactics he is using?
PM: Well, I'm simply saying I know Paul Keating better than
iinyone in this room. And I have nothing to add to or qualify the
previous answer that I ~ gave.' I don't have to make my judgements
about Paul Keating upon what in certain circumstances he may have
said or be believed to have said to certain people. I know him
better than anyone in this room. My judgement is based upon that
knowledge of him.
JOURNALIST: Mr Hawke, are you concerned that the consumption tax
will hit rural people, if we go outside the capital cities, harder
than city people because of the higher prices there. And what
can be done about this?
PM: Well let me say two things about that. Firstly I think it's
evident from the time since we've been in government that we have
a very clear realisation of the importance of the rural community
to the Australian economy as a whole. I can't repeat too often,
because it's still to easily forgotten, in all the talk about our
mineral exports and so on, that 40% of Australia's export income
is derived from the rural sector and therefore, quite apart from
anything else it would be economically nonsensical deliberately to
pursue policies which would be against the interests of the rural
community, in terms of their capacity to produce. So we've never
been about that and we are not about it now. We don't believe
that the overall tax package will be of the kind that will have
that sort of impact, that it will work against the effectiveness
of rural production. As I've said in direct discussions with the
National Farmers' Federation, we want to do what we can to help
them in ways which are relevant to their position. And don't
believe that you can use the tax system as a whole, when you're
looking at the tax system for the whole of the country that you
can use that as a way of specifically differentiating in favour of
the rural community. But I can say this, that as we go up to the
Budget I'll be looking at other elements of the rural cost
structure to see what sort of things may be able further to be
done to improve the position of the rural community in that way.
JOURNALIST: It has not only b ' een said that the Treasurer has
threatened take his bat home.' It's also been said that he has
threatened to hit people with it. In the Cabinet discussions on
this matter, did he threaten to call a special caucus meeting to
have a new ministry elected if he didn't ge. t his own way?
PM: I think you ought to know by now Laurie, and I give you
out of 10 for trying, but I don't talk about what goes on in
Cabinet Meetings.
JOURNALIST: Is that how you want to see your Government
portrayed, Prime Minister?
' PM: Well I can'-t really help how people's imagination runs riot
aotwhat happens in the Cabinet meetings. I don't run that sort
of government. I'm simply not myself going to add to speculations
about what goes on in Cabinet meetings by myself saying what does
or does not occur.
JOURNALIST: Prime Minister ' Would you close down Australia's Trade
Commission in South Africa before going campaigning for trade
sanctions in international forums.
PM: What we do about our office there is a matter which will be
considered within the totality of our approach-on this issue. No
decision has been made. We will continue to conduct discussions
with other countries within the Commonwealth, CHOGM, and within
the United Nations. What we do ourselves will be consistent with
the approach that we adopt in those forums.
JOURNALIST: Mr Hawke is it correct that the Foreign
Minister has told you that he is very worried about the
macro-ecornmi; cproblems associated with the broadly
based consumption tax, and you believe that you and
the Treasurer can get final Cabinet endorsement for a
broadly based consumption tax if Mr Hayden does not come
onto the cart.
PM: Well again, similar to the answer I gave to
Laurie Oakes earlier, I'm not about detailing conversations
that I have with Bill or with other Ministers. Having
said that I think its fair enough to say this, without
going into details, that in discussions that I've had
with Bill, he's not taken any final position on this
matter. He has raised prima facie questions, on economic
grounds, and on political grounds. But the end of our
discussion, which was a relatively brief discussion, he
made the point that because of the fact that he'd been
away, he hadn't had at that stage the opportunity of reading
in detail the White Paper and the associated work that
had been done around it. He was going to do that, and
that when he'd done it he and I and Paul would sit down
and have a very serious discussion about this. I certainly
welcome it because from the very first day of Government
Bill Hayden has been a very strong supporter of the basic
economic thrusts that have been pursued by Paul and myself
and that have been endorsed by the Cabinet. And having
said that I, of course, am not going to the hypothetical
question of what may or may not happen in the Cabinet
following the Summit.
JOURNALIST: Prime Minister how concerned are you that
the Labor Party isn't doing so well inthe polls at
the moment, and how much of that is responsible
is due to the uncertainty generated by the tax debate.
PM Oh I don't know there'll be another poll tomorrow
I guess. I don't know exactly what it will show. I would
think that we're not in bad shape. I think there is
emerging a very clear understanding of the steadfastness
of this Government to pursue meaningful economic reform.
The evidence of the success of the policies that we've
been pursuing is more and more on the board. We now have
the fact of 375,000 new jobs having been created. The
evidence that's coming from industry of significantly higher
levels of real investment, than was talked about at the time
of the last budget. Confidence in the consumer area. So
if you take the essentials of economic policy I think each
passing week clearer evidence of the success of what we've
done, and of the commitment of what we're about. Against
that is the increasing uncertainty and chaos displayed by
the Opposition. They are at odds within the Liberal Party,
they're certainly at odds between the Liberal Party and the
National Party. And I think that the confidence and the
success and purposefulness of the Government will become
increasingly evident, in contrast to those of us in the
political community on the other side of the fence from the
Government. Now, let me make the final point in regard to
the last part of your question. Its inevitable that at
this time overall political judgements about the Government
will be mixed up with people's assessment, at this stage
of the proposed tax reforms. And I think for some time
it will not be possible to disintegrate assessments about
tax reform from their overall political judgement. And in
the sense that that is true, let me say this, because I'm
confident that as the debate goes on there will'be an
increasing realisation of the, as I say, the good intent,
the integrity, and the purposefulness of what we're about
in the tax area, that the general political judgements
about the Government will correspondingly improve.
JOURNALIST: Mr Hawke will you take one last question
on the consumption tax?
PM: Well I will be in trouble with my highly paid
press officers if they having said that was the last one
I now transfer their responsibility to you.