E 0 E PROOF ONLY
TRANSCRIPT OF THE PM ON CARLETON WALSH WEDNESDAY 11 JUNE 1986
CARLETON: Have you not got it right this time. If you got
everything that you asked for in the speech would that finally
fix the economy.
PM: I think it would at this stage do everything that we as a
Government and a community could do. We've always got the
position Richard, as you well appreciate, that we're here in this
situation because of what the rest of the world has said to us
about the prices they're going to pay to us for our exports. If
we were to have a further catastrophic decline in the terms of
trade then we'd have further problems. On the assumption that
we've reached the nadir in the terms of trade, then yes I think
we've got the strategy now to deal with that challenge that's
been created for us.
CARLETON: Some of the instant reaction has been a litzle
disappointing, or a little bit of disappointment in your speech.
You said earlier on the 7.30 Report tonight, that you don't know
what will happen overseas tonight, or whether it will be welcomed
in London and New York when they start trading the Australian
dollar. If the dollar was to drop a cent and a half tonight
overseas, would that be failure on your part?
PM: No it would not be failure on my part. I would have to ask
the international community what more can a government do when
the matters directly under its control, that is in regard to
budgetary policy, I've made it quite clear that we are well on
the track to significant reduction in our own expenditures. In
the area where-we don't have control, but where we have some
influence wages I have made it unequivocally clear that there
has got to be further discounting. Now the community, the
business community, can't ask for more than that.
CARLETON: What were the hard decisions that you had to make,
that you spoke of in the speech?
PM: Let me first of all say that it is not easy for a Prime
Minister to tell his nation that they've got to have a reduction
in their standards of living. Let me spell it out quite clearly,
that is what's got to happen. It's not easy, but it's got to be
done, Secondly, it's not easy where you have an accord with the
trade union movement to say something unequivocally that you know
they're rnot going to like. I did that. Thirdly, it is not easy
to tell both the community and the States that they are going to
have some hard decisions forced upon them in the Budget and in
the Premier's Conference. Now I've said that, unequivocally.
CARLETON: When you spoke of the important area of changing
community perceptions and community attitudes, was that just
political ease for telling the Australian community that
overseas, where countries are prosperous, is because people work
and work hard. Here we are taking-. the easy way out, virtually
all the time?
PM: I put it in greater detail. I think there has been some
real substance generationally in the proposition about the lucky
country. We've had a longer term terms of trade problem. They
have been going against us over a long period, gradually. But
every now and then something crops up a mineral boom or
something like that which gets out of the problem, which has
meant that successive governments haven't addressed themselves to
this longer term problem. What I'm saying is that we can't any,
longer assume that something is going to happen which will get us
out of this fundamental problem. That means that we have to, I
believe, have increased standards of effort. We've certainly got
to broaden and deepen our export base and that's going to require
not just economic decisions, it does require an attitudinal
change. Also, in terms of attitude, I think we've got to
recognise as Australians that as part of the process of helping
ourselves we should be buying Australian more than we do. So all
these things are what I'm trying to convey to the Australian
people and I believe they'll respond.
CARLETON: The 2.3 per cent increase that the Arbitration
Commission is expected to grant shortly, is there the slightest
doubt that that is totally affordable?
PM: Well it would be, on my judgment should be, the only
national wage increase in 1986 and that would be significantly
below the movement in crisis. I think it appropriate that should
happen. CARLETON: And totally affordable, Mr Hawke?
PM: Well you can't have a situation and I don't think the
business community is arguing a position where you-have no
movement in wages and no sustaining of some capacity to purchase
goods and services. I don't think anyone is saying that. But
what we all are saying, and I'm certainly saying unequivocally,
we can't have a level of wage increases that might have
previously been anticipated. There has got to be a reduction in
standards in this community. As wage and salary earners
constitute the largest part of our national income and
expenditure, it has got to happen there.
CARLETON: And the 2.3 per cent we are about to get, is that
affordable? PM: In the total circumstances yes, provided it is the only
national wage increase this year, and, as I say, that there is
further discounting next time.
WALSH: Prime Minister, you expressed the hope that we had
reached a nadir in the drop in the terms of trade but aren't you
being a little heroic in putting that forward?
PM: Well there may be some further decline. I don't think we
can sensibly expect a continuation of a catastrophic decline. I
say that if you look back over a longer period, you know Max that
there has been in annual terms, depending on your starting point,
you could say 0.4 per cent over a period, it might be up to 1 per
cent gradual decline. What we've been hit with is this massive
decline of 14 per cent in the most recent period and something
like 9 per cent since the June quarter of last year. Now I think
that sort of thing has come to an end. The great pity I think,
as you know Max, the J curve is working in volume terms. We've
got a 14 per cent increase in exports in the last 12 months. In
the last period the volume of imports is coming down, but we've
been kicked in the bottom by this massive turn around in the
terms of trade. What I'm saying is with the J curve working in
volume terms I don't think we're going to have a continuation of
this massive decline. I think that is part of the reason why, as
again you'd agree, we've got to try and broaden our export base
so that we're not so significantly dependent upon agricultural
and mineral exports. The sort of things, in a sense, the
Canadians have done. You know that they have significantly
reduced their reliance on agricultural and mineral products as a
proportion of their total exports. Now it has been easier for
them in one sense because of their continuity with the United
States. We've just got to work on it. We can do it as you
appreciate.
WALSH: When I put that question to you I was thinking about our
major trading partner. Our major customer, Japan, is facing a
very much reduced rate of growth this year, especially in the
export sector and we've already seen cuts in our iron ore prices
in dollar terms, Australian dollar terms, and we are threatened
with steaming coal price cuts. That couldn't be a very happy
prospect. That will serve to further undermine the terms of
trade.
PM: Max as I said in my answer to the previous question, I'm not
saying that the historic, gradual adverse movement in our terms
of trade has come to an end. I think we're not facing a
continuation of a catastrophic drop. The trend term is there
that is why we've got to change our structure, the structure of
our economy, so that the composition of our exports is not then
so vulnerable to the tendency that you rightly referred to by
giving an example. That's a basic part of what the message of
the Government is about. We can't just simply sit back and say
we're going to have something like 40 per cent of our exports
being rural products and our other significant proportion being
mineral products. We've got to bring a situation where our
exports of manufactured goods and of services increases
absolutely and as a proportion. If we do that we will change the
context within which we've had historically a gradual diminution
against us in the terms of trade.
4
WALSH: But the last time we had a catastrophic fallout in the
terms of trade was in 1929 and I hasten to say that was in the
order of 40 per cent as distinct from the 14 or 16 per cent
you're talking about now. But it coincided with a build up
before hand of large overseas indebtedness, especially by
Australian governments. I was surprised in the. course of your
statement today, and in the supplementary material, very little
attention was paid to this area of indebtedness. Doesn't this
concern you?
PM: We do go to it. We' ve got to bring down our borrowings. As
you also know, not just our borrowings, but also associated with
it, we've got to bring down our public debt interest commitment
which forms such a large part of our budget outlays. Now we go
to that. I can assure you that part of what we're about in our
Budget process, and what we will be about with the States, is to
reduce our own outlays and the growth of outlays, and to reduce
the public sector borrowing requirement because we've got to
reduce that indebtedness.
WALSH: But you'd have to reduce it, I'd suggest, quite
significantly. It seems to me that your references to next
Friday's Premiers' Conference were not your
outlook. PM: Well I don't know what more I could have said max. I said
there were going to be some hard decisions. I can tell you now
there will be.
WALSH: It will be a black Friday for the Premiers?
PM: I don't think they'll be leaving Canberra on Friday clapping
and cheering. But I notice that Sir Joh said tonight that this
massive spending, there's got to be reductions in massive
spending. So I'm hoping he's going to be coming to the Premiers'
Conference consistently with that and joining with us in
accepting the need for further Government restraint.
WALSH: I can't press you too far in this Premiers area because
obviously you've got to negotiate, but are you concerned about
their very large cash balance at the moment. They can actually
reduce their borrowing and still sustain the present level of
buying? PM: Well let me put it to you Max without exposing our hand
entirely. We will be observing that they do have capacities
within their accumulated situation to which you refer to sustain
activities in the face of the reductions from the Commonwealth
and in their borrowing programs that we're going to be talking
about.
WALSH: Now of course on this occasion it hasn't only been the
public sector which has engaged in massive overseas borrowing.
In fact it is the private sector that has set the pace.
Seemingly a great deal of this investment has gone into what
would be described as non productive activity of paper shuffling
on the stock exchange, of takeovers and such like. Does that
cause you concern?
PM: Obviously Max you couldn't be watching what is happening in
the Australian business community over the most recent period and
not have some concern. Let me say two things about it. Firstly,
as you know, we've commissioned a paper from Paul, Paul Keating,
that is a very large paper which is now being analysed and
discussed within the Government, within the processes of
Government. Let me also say this which I think is very
significant, I've had a large number of representations to me
from the business community-,-significant sectors of the business
community, who are expressing concern about the increased
dimension of activity in the area that you're talking about. So
in our consideration of Paul's paper we will also be taking into
account what the business community itself is saying to us.
WALSH: Do you also feel that this takeover activity is leading
to a greater concentration of economic power?
PM: Obviously it can. There are two aspects that one has to
have towards this. One I think can't take any joy in takeovers
for the sake of simply of capital profits and capital
appreciation by those seeking to acquire. Having said that and I
think there should be a proper concern about that, it is also
true Max, that some existing companies ought to be taken over.
There is one I had very much in mind, and I think without too
much you know the one I mean, that hasn't really grasped the
opportunities. Let me say I'm not talking about BHP in case
people say is he saying that one. It is another one. Now I
think in fact that some processes of takeovers in regard to a
particular company may well mean that that company may become
much more expansionary in an important area of activity which
lends itself to greater exports. I'm saying that where a company
hasn't been doing all that it could and a new management, new
ownership, can become more dynamic or expansionary, grasp export
opportunities, it is in the community interest that should
happen. what I think you're worried about, and I share your
concern, that takeovers simply for the sake of accretion of
wealth to particular individuals and with no other concern
involved is something that we ought to be worried about.
WALSH: My concern is, if I can personalise it, is that a lot of
the takeover activity and the capital inflow is in fact what I
call tax driven. You have a tax system which encourages this
activity rather than giving an even playing field in the
corporate sector.
PM: I'm a very, very careful reader of all that you right.
Every time Walsh puts pen to paper up in the Lodge there is a
fella reading it. So I know what you're saying about that. I
simply say that the Treasurer has prepared a paper on this issue.
We're looking at it and as I say, we'll look at it. Certainly
also in the context there is a very wide range of representations
I've had to me from senior figures in the Australian business
community saying has what has been happening gone too far?
WALSH: Right I'll just change the subject entirely to the point
Mr Howard raised in his response to your statement today. He
said you hadn't addressed the biggest single problem facing the
community the rate of Australia's inflation as compared with
our trading partners?
PM: Mr Howard?
WALSH: Well inflation rather than Mr Howard.
PM: Let's first of all dismiss his credentials and credibility.
What Mr Howard, the last Treasurer, handed over to Hawke and
Keating was an inflation rate of 11 per cent. Now we've brought
that down because we've had sensible policies. Before we got hit
by this massive depreciation, which is a_ 3-0_ per cent depreciation
from the beginning of 1985, we've brought the Australian
inflation rate down to 5 per cent, which was tagging along there
close to the level of our trading partners. The depreciation
that has taken place has boosted the inflation rate, as you know
why, obviously import prices go up. We are now on a downward
path on inflation. If the things that I'm saying should happen,
further discounting in wages, and we exercise a restraint by the
whole community, we'll have our inflation rate tracking down
again towards that of our major overseas partners.
WALSH: But our major overseas partners, I mean at the moment we
are actually talking about rates of inflation of 1 and 2 per
cent? PM: Yes some of them. Some of them even zero.
WALSH: Will we see zero inflation in Hawke's time?
PM: I'd love to be able to think that we could, but what I think
is the honest and realistic thing to say is remind the Australian
community that the Hawke Government from 11 per cent brought
Australia's inflation rate down to 5 per cent. Close to our
overseas partners. We then got hit by this massive depreciation.
We are coping with that. If the community, business, trade
unions and the rest of us go along with, and co-operate with,
what I'm saying we'll start again to get back to our ove: seas
partners rate.
WALSH: Prime Minister, just before letting you go, the reference
in your speech, the $ 1 billion saving you've detected in the
Budget, does that refer to the $ 1.4 billion figure which was
leaked to the Sydney Morning Herald which was seen as the target?
PM: What I'm saying is that is what we've identified so far.
We've got further to go in the process.
WALSH: So it is still $ 400,000 to go?
PM: Yes. I'm confident Max, that we're going to get up to the
target we're talking about.
WALSH: Are you prepared to talk about a target to growth in the
public service?
PM: What I'm about, and I'm absolutely committed to this, is
reversing the trend. Under successive governments, I've got a
figure here, under the last year of our predecessors it was
higher than any year we've got. In 1982/ 83, the year before we
came in, there was a 5.5 per cent increase, the last year of Mr
Howard, 5.5 per cent. It has come down progressively under us
4.3, 2.4, estimated 1.7 per cent this year. Now we are going to
do more about this. It just has happened that people say you
have new programs, you've got to have more bodies and so on. We
will be moving to ensure that this inextricable growth comes to
an end. And I say that not as a public servant basher. We need
a great public service in this country. But as I say an
increasingly efficient public service doesn't mean an
increasingly large one.
WALSH: Are you looking for zero growth or negative growth?
PM: Well I would like to get towards zero growth.
WALSH: In what time frame?
PM: As I said in the speech, because of the entrenched
practices, and when I talk about practices you know what I mean
by that what's involved in getting rid of people and so on, and
appeal mechanisms and all that sort of thing it is not
something that can be dramatically done overnight. I give you my
unqualified commitment that we are going to take a series of
steps which means Australia is going to see an end to this
inextricable growth. I'd like to get down to a zero position in
the foreseeable future.
WALSH: Prime Minister, thanks very much.
ends I