PRIME MINISTER
TRANSCRIPT OF QUESTION AND ANSWER SESSION, AUSTRALIAN
FINANCIAL REVIEW POST-BUDGET DINNER, MELBOURNE,
16 AUGUST 1989
E 0 E PROOF ONLY
Mr Andrew Scott, Coles-Myer
QUESTION: Prime Minister, in deference to your tendencies,
I have placed a personal bet of half a dozen bottles of
wine, that the 90 day bank bill interest rates will be below
percent for a full one month period before the end of
June 1990. Is it a safe bet?
PM: I'm not sure that I heard your question. Is it that
you have engaged in a betting transaction involving alcohol?
If so, I'm appalled. It's nine years ago that I was in that
sort of caper. But that interest rates would be, this is
mortgage interest rates would be at what by when?
QUESTION: Bank bill rates would be
PM: Bank bill rates would be?
QUESTION: ( inaudible)
PM: By June of 1990?
QUESTION: ( inaudible)
PM: Well I've got to disappoint you because I have made a
practice of not predicting ( laughter) I haven't finished, of
not predicting actual rates at a particular point of time.
I am prepared to say that I think we have in place the
policies which will mean that before the end of this
financial year, which is relevant to your transaction, that
interest rates will be moving down. Now it's just a
question of whether they'll reach the point that you're
talking about, but I'm not going to put a figure on it
because if I do put a figure on it, the very fact that I say
that, and it's an awesome responsibility, I tremble about it
( laughter) I do, I tremble about it every morning under the
shower and the very fact that Hawke said they'll be at a
particular point at a particular time will effect the actual
movements. I will assert that before the end of the
financial year the rates will be moving down and I hope you
win your bet. , a-41' A
Mr Keith Lambert, Deloitte Haskins Sells
QUESTION: Prime Minister, I think, if my maths is correct,
there's some 33 weeks between now and April of 1990. Could
you tell us please what would be the additional annual cost
of paying the pensioners their $ 2 a week from now, what
would be their additional cost of paying them the full
increase from now? Given that you're expecting a $ 9 billion
surplus, I wonder if it would come as any surprise that some
of the pensioners are referrring to this as the two bob
Budget? PM: Yes it does and fortunately when you're in the position
I'm in, unless you want to drive yourself absolutely insane
and I haven't got that wish, what you do is to deal with
those people who, through their experience and commitment
and involvement, have the authority to be regarded as
spokespersons for their constituency. In that regard it's
important to note that two people who satisfy that criterion
Maureen Hewitt who for a very considerable period of time
has been a very effective spokesperson for the pensioners in
this country and, on a more general basis, Julian Disney
from the Australian Council of Social Service have both
applauded the Government on what they've done.
Before I come to specifically answer the question you put I
think it's appropriate that I give you the context in which
we've acted. When we came to office, the pension, as a
proportion of average weekly earnings was about 22 and a
half percent. We've got it up now to virtually 25 percent.
Even if we had given no further increase, it's likely that
as we went into next year it would still be at 25 percent at
that point after the adjustment in April, but we wanted to
make sure that there would be no doubt about that and so
we've made the decision to award that extra $ 2 a week from
April of next year.
So what we have done at this point of time is not some
aberration, but it's another instalment in what has been a
steady improvement in the relative position of pensioners in
the community. We've been able to do that because, as I
indicated in the speech that I made, more than any other
Government before in the history of this country, we have
targetted assistance. That's what any sensible community in
this day and age is going to have to do and to do
increasingly. We regard it as an obscenity that we were
wasting resources in the pension area upon millionaires, we
brought in the assets test which you may recall particularly
in this fair city of Melbourne, if you read the Melbourne
Herald, that that was going to be the end of the world as we
knew it the assets test. Well of course now it has become
the conventional wisdom.
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Now, of course, when you are looking at this question of the
adequacy of the decision we've made, therefore you see it as
a step in the culmination of what we've done. But it wasn't
all that we've done. What we've done in the area of
pensions of course is to increase the tax free area of
additional income that pensioners can earn and that is being
extended so that you will have an identity of income,
additional income, and the tax free area and up to the point
where it's now determined that by 1995, no full or part time
pensioner will pay tax.
So it's not just the increase that's been given which is
significant, but it's part of an overall approach and
package which as I say has been very, very strongly
applauded and welcomed by the people who do have the
responsibility of speaking with authority for that
constituency. In my own personal experience I met a lovely group of
pensioners today at Parliament House and without exception
they applauded what we've done. Of course, I think it's
worth making the point without spending any time on it, that
equally important on what we've done in the pension area is
not only for those who are in the pension area now, but the
most significant thing we've done of course is to tackle, as
I said, this problem for the future so that there will be
incentives to savings and superannuation. As to what
the costs would be, well I think the full year, full year
cost of what we've done is about, as I recall, I say this
subject to correction, about $ 320 million. So you can work
it out yourself, even without a calculator.
Mr Peter Hill, Trade Indemnity Australia Limited
QUESTION: Mr Prime Minister, as a result of yesterday's
Budget do you believe Moody's will downgrade Australia's
international rating? If not, why not and if yes, what
effect do you believe such downgrading will have on our
economy, both locally and internationally in the future?
PM: I don't know whether the rest of you have had the same
difficulty as I am having in hearing the questions, but
fortunately I've got them written down here. The answer to
your question, do I believe that as a result of yesterday's
Budget Moody's will downgrade Australia's international
budget, no I don't believe they will. As far as you can
tell from what I've heard on the news so far, a spokesman
whoever he may be, but he was described as a spokesman for
Moody's, spoke in fairly laudatory terms about the Budget.
So if there is any logic at this stage of their career in
what they do as distinct from the sort of noises they've
been making recently, then if they are applauding the Budget
you would think that they would not further downgrade us.
If they did downgrade us it would be a surprise and an
irrelevancy.
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Mr Chu
QUESTION: Mr Prime minister, you are stressing about
incentives and motivation for the people, how do you expect
us to improve motivation or productivity if the maximum tax
rate of the upper income groups is actually 50.25 if you add
in Medicare tax, as compared to the corporate tax rate of 39
percent? Are we kidding ourselves to expect the managerial
resources of the country to work as hard as you want us to
do? PM: Well, let me just very quickly put the background to
this. You know what we've done already in this area, of
changing the tax rates. We inherited a top rate of
we've brought it already down to 49 and at the beginning of
next year it will be coming down to 47. So, if you want to
make comparisons between alternatives in this country, the
other mob left you with 60, we'll have it down to 47 at the
beginning of the year. The lower rate down from 30 to 21.
Now that's a very significant change. You do, in a sense,
put your finger on a problem when you talk about the gap
between the top personal rate and the company rate. We
believe that, of course, what we've done to very
significantly reduce that gap is in itself important.
Secondly, of course, we have in our period of Government
taken an unprecedented number of measures to smash avoidance
schemes and to ensure that the resources of the Taxation
Commission are available to do what they should do and that
is to ensure that everyone who should pay their tax pays it.
Therefore I think the degree of incentive that existed under
the extraordinarily lax and objectionable system that was
left by the conservatives, the incentive that was there to
avoid and to have artificial schemes is significantly less
now than it was because of the two things. We've reduced
the gap and, as I say, the people who want to go about the
processes of artificial reward know that it's very much
more difficult than it was before.
Now that then comes to the fundamentals. Are Australians
people who are only going to work because they say, well I
look at what my disposable income here is compared to what
it might be in another country and because there is some
difference I'm either not going to work so hard or I'm going
to uproot myself and go. well, I make a different judgement
about the Australian people than you do. obviously, all of
us, and I don't exclude myself from that, I guess generally
speaking, you'd like to get as much out of what you do as
you reasonably could, but I don't think Australians are
overwhelmingly driven by that consideration. I think there
is an understanding that if we want to undertake a number of
the things that we have to in creating infrastructure in
this country, then there are certain things that Government
has to do.
You will understand from the statistics I've already given
that this is a Government which has not increased its take
in the taxation area, We now have a taxation as a
proportion of GDP which is lower than it was before and that
the creation of the surplus has been by way of cutting of
expenditure. Now that means that if Government is going to
undertake the things that are necessary to create the
infrastructure that industry wants, then you've got to have
your financial where-with-all to do it and there is a limit
to how far you can go in tax changes. Having said that, I
would on balance hope that at some later stage we may be
able to somewhat narrow that gap further. But that is, let
me make it clear, is not something which is on any immediate
agenda. We have just made a very, very significant change,
very significant tax reductions and it is appropriate that
they should have their effect in the system.
Finally, I make the point that I think that Australians do
have a greater sense of motivation than that upon which your
question is predicated. You predicate your question upon
the assumption that either the only or the overwhelming
consideration as to how Australians are going to react to
the challenge facing them is what is in the end the
disposable income they get as a result of the equation
between wages and salaries and tax. I don't think it's as
simple as that. I think Australians have, a lot of
Australians and I think the majority of Australians have
motivations which go beyond that.
Mr Gavin Ross, Gavin Ross and Company
QUESTION: Mr Hawke, in economic theory the way to cure a
balance of payments is to devalue the currency. Imports
become more expensive and we import less, similarly exports
become cheaper and we export more. Why not devalue the
currency and lower the interest rates?
PM: I'd love to see your text book, love to see your
textbook comrade. I understand that the theory that you're
expounding suggests that if we devalue the currency, we'll
have a situation where we will import less because the
imports will be more expensive and we'll we'll export more
and the economy is going to go into boom time and that will
enable us to lower the rate of interest. well, I don't know
which particular land of fantasy you come from or you want
to go into, but it's not the real world. I just wonder
what, for instance, you would think, without going going
into all the complications of that absurdly simplistic
proposition, but what you would think might happen in the
area of wages policy. For instance, when our import prices
went soaring upwards our inflation rate went up and the
trade unions, as well as employers who naturally take the
automatic adjustment as their holy right, I mean, if the
cost of employers go up they automatically must adjust for
the increases in their costs.
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So they put their prices up and the unions would also, of
course, would be saying well up go our wages and in no time
you'll become completely uncompetitive. So, get the right
theory book comrade.
Des Moore, Institute of Public Affairs
QUESTION: Prime Minister, in his Budget speech, the
Treasurer said quite correctly, I believe, that demand
is only half the story. The other half is to lift the
supply of goods and services. My question is first, why,
given the great achievements claimed for the Accord, there
has been virtually no growth in productivity since 1984/ 85
and why the 1989/ 90 forecast implies no growth again in
productivity this year. what has happened to the
productivity agreements and the industry restructuring that
is said to have occurred?
Second, why do we still have wages and inflation growing way
out of kilter with our trading partners after six years of
the Accord? Is it seriously being claimed that we would now
be worse off in terms of productivity and inflation if there
had been no Accord since 1982/ 83?
PM: The answer to the last question is yes, very
significantly worse off and I'll come to explain why in a
minute. But let me go to the series of questions involved
in good old Des' predictable question the sort of question
that you'd expect from the way Des has been writing over the
years.
Now, the first question that you put as to why there's been,
as you put it, virtually no growth in productivity since
' 84/' 85 of course there has been growth in productivity, but
the basic reason why you haven't had a higher measure of
productivity increase is for the fact that we have had a
rate of employment growth, on average, more than twice as
fast as the rest of the world and four times faster than
that rate of employment growth that operated under our
predecessors. So when you've had this record and above
average increase in employment then, as you know, the simple
equation of measure of productivity, the relationship
between numbers employed and output, where you have a record
rate of employment growth more than twice as fast as the
rest of the world, obviously that is going to have an effect
upon your productivity figures. It's just a matter of
simple arithmetic logic.
Now you then ask the question, remarkably, what has happened
to the productivity agreement and industry restructuring
that is said to have occurred. Now of course, the major
instrument of industry restructuring is accumulating in the
most recent period and no-one, including the employers, who
have been involved in this process said at any point that
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they expected those changes to have an immediate reflection
in productivity improvement. But what they have said, and
what they have said on the basis of the experience that they
have derived from comparing overseas performance with what
they expect to do here, is that over a period of time into
the future, those changes will be reflected in significant
improvements in productivity.
For instance, I just put a very simple question to you. If
you look at the metal trades, do you think or don't you
think that as you are now in the process of moving to a
situation where instead of having some three hundred
classications in the metal trades award you're going to move
to have about eight. That is going to involve a massive
change in the training processes and the interchangeability
of people on the job.
Do you or do you not think that that change is going to have
a significant impact on productivity? Of course the answer
to that question is in the affirmative. Those changes are
in the process of being implemented now and when they are
firmly in place and they're extending more and more through
the economy, they will, without any question, have a
significant impact on the productivity performance of the
Australian economy.
Then you go on to ask the next question, why do we still
have wages and inflation growing way out of kilter with our
trading partners after six years of the Accord. Well of
course, again, it's based on a false premise. It is, we
have a situation where we are not performing as well as
some, obviously of our trading partners, we are doing very
much better than others. For instance, how would you like
to swap the position in the United Kingdom with ours? The
United Kingdom has the sort of position which
philosophically you would applaud which reflects the absence
of an Accord. Does it ever, no Accord there. What's your
expectation about wages movement there, about 10 or 11
percent in wages growth and inflation which is going up
towards the same level. That's what you have in the United
Kingdom in the absence of the Accord.
In this country, which goes into your next question, you're
saying is it seriously claimed that we would now be worse
off in terms of productivity, inflation if there'd been no
Accord since 1982/ 83, the answer is a resounding yes. Of
course we'd be infinitely worse off. How do you think that
we've been able to create one and a half million new jobs?
How do you think that we've had a reduction in real wages?
Do you think you would have had a reduction in real wages if
you hadn't had the Accord, if you'd had free bargaining?
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You don't have to be theoretical about this Des, just go
back and you should remember, you were in the centre of it
in the Treasury at the time associated with those who were
pursuing those absurd policies under Stone, your civil
service head and under Howard, your political head, you were
right there in the thick of it. What happened, my fellow
worker? I'll tell you what happened. Under your policies,
which were the abandonment of the Accord or the central wage
fixation, after Malcolm went off to the wedding and said go
for your life, no centralised wage system, go for your life,
have the free labour market. What happened? What happened
to wages? Seventeen percent increase in wages and double
digit inflation and massive unemployment. That's what you
had when you had the absence of the Accord, when you had the
absence of centralised wage fixing.
So you don't only need to exercise your brain and come to an
intellectual conclusion. Just take yourself back eight
years in Australian history and you've got your own answer
to your own question. You had the absence of the Accord,
you had the absence of centralised wage fixing and, my
friend, you had a wages explosion which wrecked this
economy. You were involved in the whole process and you
did, as Paul has said, something which requires a very
unique genius. No-one had ever been able to do it before.
You put Australia into negative growth. That's what you did
without the Accord. With the Accord we've got a situation,
we had four times the rate of employment growth under us
with the Accord, against the absence of the Accord, four
times as fast as what you did then, twice as fast as the
rest of the world. So I'll take the Accord and you can have
your 1981/ 82 fiasco.
Mr Peter Mitchell
0 QUESTION: Mr Prime minister, this is not a Budget question
but I know it's something very dear to your heart. With
your love of cricket and the support you've given the
Australian cricket team during those lean years, you must be
delighted with the result of the Ashes over the last week.
Would you like to comment sir?
PM: I'm thoroughly thrilled, as I think you all are and let
me just say, quite seriously, I had the pleasure when I was
over there recently on business, we were able to get just a
few hours off to go to Lords, let me say this, they're not
only magnificent cricketers, but they are tremendous
ambassadors for this country on and off the field. I don't
think we've had a better team in that respect and they
deserve all the success that they are getting. They are an
enormous credit to this country.
ends