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PRIME MINISTER
TRANSCRIPT OF THE PRIME MINISTER, THE HON P J KEATING MP
PRESS CONFERENCE, FEBRUARY 26 1992
E& OE PROOF COPY
PM: I'll just say a few introductory things. One Nation Is
basically a four year plan for Australia, it's a
Statement which I think will lead to a turning point in
our economic history and our social history, it will
help us bring on a recovery to lift employment to deal
with the problems of jobs, the creation of jobs and it
will continue to produce a gulf as it has, as to date
has been the case, but I think an even wider gulf
between what the Government stands for and what the
Coalition stands for, that is the Party which has
reformetd Australia, taken it out of the Rip-Van-Wrinkle
years of Menzies that made Australia an international
place and which will continue to do that, that is, the
Party which has reformed and built Australia will prove
tonight: it is going to continue to go on doing just
that. So I think it will contrast with basically the
sterilEi approach the Liberal Party has taken, but most
importantly what it does, it will accelerate the
recovery, it will bring Australia back into growth, it
will bring it back into growth in a cyclical sense, in
the cycle, but improving the long-run structure for the
productive base of the economy. So it has a lot of
long-run portents and will set Australia up well for
the 1990s. So I'll take questions from there.
J: Prime Minister what extent do the tax cuts you
foresha~ dow merely off-set bracket creep?
PM: Well thie important thing about the tax cuts is that
Labor has in the 1980s given back more than bracket
creep, more than bracket creep, but certainly fully
off-set: bracket creep. In other words the real
incidence of taxation wasn't rising. But we did it in
the context of precuring agreements about real wage
restraint and producing lower inflation and as you know
the tax cuts of 1989 are one of the principle reasons
why we now have a low inf lation rate. In part of our
discussions with the ACTU, while we are not in a wage
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tax trade-of f like we were in the 1980s where we had a
reductiLon in nominal wage outcomes in return for taix
cuts for particular people within certain decile income
groups,. what this is is creating a tax environment
which will be conducive to the maintenance of sensible
wage outcomes. So it does two things. It will help us
maintaiLn that low inflation performance which, of
course,. will be a great boon to Australia and as well
as that, it will provide an incentive for a great
categor7y Of tax payers with a lower marginal rate of
tax, that is, an incentive to earn more, to do more
overtime for instance, create more income without
loosing it at the marginal rate step of now 38%
reducing that to 30. But I make the point it is
it's a structural change, it's 30% but need I hasten to
add without a 15% string attached, without a
consump~ tion tax attached to it.
J: Is it as off-setting as
PM: It off-* sets the bracket creep in the period.
J: Mr Keat~ ing, don't you loose the leverage that tax cuts
will give you to bargain with unions?
PM: Well we needed a lot of that leverage when we had
inflation running to 7-8% t. It'Is very hard to run a
system at but it'Is much easier to run a system
with low inflation and because we are now moving into a
decentralised wage structure where productivity
opportunities will present themselves, the most
important thing is to shift from aggregate wage
outcomes to inflation so the guiding light in looking
at our wages system and affordability of wages will be
keeping our inflation rate comparable without trading
partners. That will be the yard stick which governs
what the Government says before national wage hearings,
in its relations with the ACTU and the unions and in
relaticon to taxation.
J: Mr Keating, is the message from the unemployment
forecasts that the worst is over, it was not quite as
bad as you thought and it's going to decline in time to
come?
PM: Well we have got unemployment coming back to 10% in
1992-93 and then to 7 3/ 4 in 1995-96, but of course
with very high participation rates, with very high
participation rates. I mean if we were looking at the
participation rates of the early 1980s and comparing it
to these we would have much, much lower unemployment
numbers.
J: Prime Minister, if that is the case then why is it that
things like JobSearch, NEWSTART, Jobstart etc are
being cut back?
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PM: No, JobStart is being increased, Jobtrain is being cut
back, only one. Because we didn't think there was any
point in training people for jobs that were not there.
There : Ls a net addition to those labour market programs
which are all described in the document.
J: Just looking at the document here it shows 3 specific
figures that are a reduction
PM: No, there it is, JobStart 15, $ 85M, 10; Jobtrain is a
re-education; Jobskills $ 30M, $ 15M extra, and when you
look at apprentices, the assistance retention of
indenture to apprentices is $ 3.2M in $ 1.6 in 1991-92,
$ 3.2 in 1992-93, and of course need I say that in terms
of vocation training it's a total revolution in
education here. A $ 720M program over three years to do
for TAFE what the Commonwealth did for universities
back in the 1970s and 1980s and so these vast retention
rates which Labor has presided over giving children the
opportunity of completing, in very large numbers,
secondary school has been not only accommodated now in
many p: laces in higher education and universities, but
as well. as, that now in future in technical and further
education, a national system of technical and further
education.
J: Mr Keating, high retention rates and also the fact
that in the first year Dr Hewson 50,000 people off
the dole queues, is it f air to say that you are using
he training system to disguise the level of
unemployment?
PM: I don' 11: think you can say the revolution in education
and whatever else you can call it, I think you can ca] ll
it that is about basically changing the unemployment
numbers. I mean high cynicism I understand but that is
getting beyond the pale.
3: What convinced you that Australian families deserve
this very generous one-of f allowance gesture and what
would you like them to spend it on
PM: Well it: is' up to them but I think that the categories
of people who will receive it, Australian families will
spend it generally. And the point of it is that it can
happen early, it can happen in this budgetary year',
it's not a matter of waiting until the next Budget. So
before the profile of the stimulus comes from the
public works programs the railways, the roads, and all
the Other great initiatives which are there which will
build up through the course of calendar 1992. This, in
terms of fiscal stimulus, will provide a much earlier
profile to that rise. And so it is going to the people
who I think need it and spend it, that is, families and
of courcse, for low income families it is on-going.
There : Ls a $ 250 million a year on-going expenditure
under the Family Allowance Supplement. So there's two
parts, there's a family allowance payment which is one-
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off and the one-off of course doesn't have a cyclical
it's a cyclical matter of its essence. There is no ongoingness
there on the Bugdet in 1993-94, but the vast
part of it is a permanent $ 250 million improvement.
J: Mr Keating, the financial markets have been skimpish
lately and the dollar has been bouncing around a bit,
do you see this package steadying the markets?
PM: Don't ask me to pour over them. I don't know what they
think of this. I can only say this, I said we would do
a responsible and a constructive thing. This brings
the surplus, this produces a fiscal surplus in 1995-96.
It has a cyclical profile to the spending and it drops
away and as the economy recovers and the receipts
recover, as the outlays drop away, as you see in those
profiles, that the Budget balance goes from a peak of
$ 8 billion, dropping back to $ 4.6 billion deficit, then
$ 600 miLllion and a surplus of $ 2 billion. So, I don't
know. I think the financial markets would regard that
as sensible, a sensible thing to do for a recession and
a recovery, and a sensible thing to do f or the long
run.
J: Prime Minister, what do you say to Opposition criticism
that the growth projections to deal with this deficit
are too heroic by half?
PM: I don't think they are heroic at all. We'Ive got in
there for GDP 4 and 3/ 4 per cent. We had, I think, In
' 83-4 Something like 6 per cent growth in that year.
And if you look at this economy compared to the economy
then, we've got a much better position with the profit
share in the economy, we are much better aligned in the
factor shares, you don't have these huge structural
deficits overhanging the economy, you've got a stimulus
there coming from, for a start, a competitive exchange
rate and more recently, depreciation, the obvious
changes; which are going to occur from a change i~ n
international trading conditions and the breaking of
the drought, and stocks. So I think it's very
conservative, 4 3/ 4 is a conservative number.
J: Mr Keating, in this 4 year plan, in the scenario you
don't say anything about what will happen to foreign
debt over that period. Won't it be higher in the end
and have an effect on the current account?
PM: No, on page 126 you'll1 f ind some text there on the
current: account. It says, talks about it coming back
to 3 3/ 4. This would be consistent with a slight drift
upwards in the ratio of net external liabilities to
GDP. As a ratio of debt to equity financing however,
returns: to'levels which existed prior to the excessive
leveraging of the late 1980' s, the net external debt to
GDP ratio could stabilise or decline slowly.
J: So you are saying we can sustain the growth we had in
the 1980s which we now have a blow out in debt?
PM: Well obviously we had a lot of leveraging, we had a lot
of equity displacement with debt. They're saying go
back to more normal levels of debt to equity in the
financing of the Australian current account and that
the, to read it to you again that a slight drif t
upwards in the ratio of net external liabilities to
GDP, but then they say the net external debt to GDP
could stabilise or decline slowly.
J: To what extent is that helped by the easing for foreign
investment rules?
PM: Well it: might be because there has been a big shif t
from debt to equity in the last couple of years as you
well know and the easing of foreign investment will
obviousl] y facilitate more equity investment in
Australia and therefore less equity is not attracted to
interest rates where debt does obviously.
J: Mr Keating is the payment to families some sort of
compensation to the bitter blow of the recession?
PM: Well it is obviously a help for families. It's a help
for families and obviously some will do it tougher than
others, but it is a help for families and it's a way of
inducing some stimulus to the economy and I think an
efficient way.
J: pensioners and they are worse off than families.
PM: Well they were adjusted with full indexation right
through the 1980s and wage earners were not.
J: How much willingness do you think there is on the part
of the private sector to fund public infrastructure
projects?
PM: Quite at lot. What is in here is a very innovative
change. As you know there is a very innovative change
in the tax system here for private provision of public
infrastructure, but the key is that it has to be
private. In other words we are not changing those
sections of the Income Tax Act where a business would
claim deductions under these measures while the income
of the business was guaranteed by a state government or
a state instrumentality.
J: How are they going to turn a profit over 30 years?
PM: Well it depends on what they do.
J: Are we going to see toll roads in Australia?
PM: Well you may well do. I mean you will see, you have
seen some already, but you will see I think a number of
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projects in the land transport area which can be taken
on as private ventures, and if they are they will get
the benefits of these concessions. I mean it is a very
attractive arrangement for a shift into private
provision of infrastructure. Can I make this example,
if we separate, as we propose here, power generation
from power distribution and we have a grid company
which breaks up the monopolies of the electricity
commissions which is entirely possible under these tax
concessions, the next major power station in Australia
would be privately built, for instance.
J: Mr Keating why did you single out the sales tax on
cars?
PM: Because I think the rate's been too high. We're
producing the same number of cars now we were in the
early 1970s, we have got a car fleet with an average
age of 17 years which is inefficient, which is
polluting the environment, which is costing motorists a
lot in keeping them roadworthy which has obviously
safety considerations about it and is not as a one-off
but as a permanent change for the car industry. We
reduced the sales tax up to the limit where the tax
rate changes. For luxury vehicles we reduced it from
to 15% and hopefully that is about $ 800 on a
Commodore or Ford and hopefully it will stimulate the
motor vehicle industry which needs a stimulus at this
time and hopefully change over time the age profile of
the Australian vehicle industry.
J: When do you look at finishing the wholesale sales tax?
PM: Well it has this virtue that you can actually decide
whether cars, passenger motor vehicles, the cars most
people buy are at 20 per cent and whether the luxury
cars are at a higher rate.
J: suggest you might wait to the August Budget?
PM: Well a Budget is a Budget, you can do all those sorts
of things, this is about a recovery, a stimulus and a
recovery a continual change though on the production
side of the economy through such things as
depreciation, the vast change I mean the big business
change in here, a vast change of depreciation
arrangements, other innovative changes and the
rebuilding of all the infrastructure so long left
neglected. It's a quarter of a century since we put
investment to rail, a quarter of a century and, of
course, it is always Labor that builds the big
projects, it's always Labor that takes the lead and
it's Labor again which is going to give Australia a
rail highway, it's Labor again which will give
Australia a national electricity grid, it's Labor for
the first time to give Australia an internationally
competitive system.
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J: And will this alone win you the next election?
PM: I think it contrasts, does it not, with the sterile
accountancy of Dr Hewson's package.
J: Mr Keating with going to win the election campaign
with 10% unemployment and $ 80 million debt economy
to turn out right by 1995-96, what can you say to the
Australian people
PM: If you have sat here for any years we have got a
structural budgetary position which is so tight that
once the unemployment starts to drop back and the
receipts start to pick up the budget swerves back into
surplus. I mean we didn ' t sit there for seven and a
half years cutting structural budget outlays to achieve
other than a very tight budgetary system at the moment
which has expanded because of the natural stabilisers,
the recession, but which will close back. So it is not
a matter of having any f aith, I mean that is simply a
mechanical matter a mechanical matter, but I think the
more general point is the point, I mean the Opposition
are about shifting the tax base from income to
expenditure, that's essentially it. This is about
continuing the micro changes, it will not change the
travelling time for freight between Sydney and
Melbourne, to pay you tax on your food, your clothing
or your dry cleaning, it won'It change that and there's
nothing in Fightback that changes. It won't change the
interface between the ports and the railways, there's
nothing in Fightback which will change that. The sort
of proposals we have here for electricity or the
airline system or to give our children a change of a
decent technical education. I mean the breadth and
magnitude of this package, the imagination of this
package: compared to the accountancy, the sterile
accountancy of a shift in tax f rom income to
expenditure and of course the damning review which its
principal econometricists paid it to say it will
actually reduce GDP. It will actually increase
unemployment, it will actually increase inflation.
Compare that to this!
J: How did you come up with a figure of $ 800,000?
PM: Well that'Is part of our modelling. It's simply about
where wre see employment growth and we've got $ 150,000 I
think in 1991-92, $ 200,000 in 1992-93 and about a
quarter of a million each year thereafter.
J: ( inaudible)
PM: Well : Lt's the package overall I think which is
important, the impact on the economy, the depreciation,
all of the other things. They have to in the end be
about growth, GDP. The linkage between employment and
GDP is pretty clear.
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J: In your 3 projections you've got demand outstripping
supply iLn a big way, imports up on exports, GNE higher
than GDP
PM: Paul ( Bongiorno) we have trained you well you would not
have known, you poor old thing, what GNE was. It
gladdens my heart. You have warmed me up, you could
have paid me no greater compliment.
J: how will we get better results after the 1994-95
election without slamming on the brakes, higher
interest rates?
PM: What will happen is that, the economy will respond to
the investment. It will respond to a higher profit
performance. It will respond to more demand. It will
respond to a better depreciation schedule and demand
for investment will rise. Therefore that will be
reflected in imports. But it will taper off, obviously
after that surge and we have it tapering off through
the periods. We have been very conservative, I think,
estimates on exports. Quite conservative on exports
and if that's the case, we will do better. We will do
better on the merchandise trade balance than we've got
here. But even here we have got the current account
coming back to 3 3/ 4 per cent.
J: But will it taper off without the use of interest rate
cuts? Will we revert to the late
PM: Where are you? Oh Don ( Woolford).
J: in the late
PM: Well, in the late ' 80s was a period of unprecedented
boom in. credit growth. 20 per cent a year for the last
couple of years by a global financial market system
which was funding credit often unwisely, chasing asset
prices around the world. I mean that's the sort of...
We had demand running at twice the product growth.
This is not the case here. So that sort of monetary
regime which we employ, to try and pull our demand, our
spending back in line with our production, is not the
sort of.-thing which is in here.
J: Mr Keating do you have the ( inaudible)?
PM: Well, i~ t says the Government wants the economy to grow.
It's providing a stimulus to help it grow. We've got
low interest rates now feeding into the system. We've
got depreciation and a competitive exchange rate
feeding into the system, a competitive exchange rate
system which we've had since 1983. If we are comparing
this to other recessions, we have got those changes.
We've ( jot the corporate sector now running very tight.
The first shift in volume will go straight into
profits. Straight into profits, so the profit share
will rebound quite sharply. I think all these things
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are great boosts of confidence and we are doing the
work. We're not asking the private sector to spend,
even though we do that through the depreciation
allowance. We're doing it ourselves. We're going to
spend. We're the people who are going to remodel the
railway lines and build the ring roads, and do these
other we are doing it ourselves. So all of that
kick-start, that stimulus, will go into the economy and
I think it will be a bull point for conf idence and it
should be a bull point for consumer confidence. And we
are helping consumer confidence by putting money into
families who we think will spend it.
J: Does your strong confidence in inflation mean that you
have got the unions in your pocket now?
PM: Well, it is not a matter of having the Unions in my
pocket. The Unions have been the most cooperative
institution in the 1980s haven't they? They took
reductions in real wages, they saw inflation come down.
But what we are doing is we are keeping the place
together. The difference between us and the
confrontation of the Liberal Party is we're bringing
together a partnership between Government and business,
between Government and Unions, to maintain sensibly a
hard won victory over inflation. We're not doing as
Dr Hewson is doing, doubling the inflation rate with a
per cent tax on everything people spend and consume.
We are not taking that risk. We're keeping inflation
low. We've broken the back of a 20 year problem and
we're keeping it broken and the Unions have the good
sense, -and the national spirit. We have got a very, we
have had a very responsible trade union movement.
J: Back onto consumer confidence, will there be another
interest rate cut?
PM: There has been an 11 percentage point cut in the system
now and rates are at very low levels and I think, we
are seeing some change in confidence levels in the
recording of confidence levels and we have seen some
improvement, notable improvement in employment since
December. So I think the thing is starting to work. I
think -this document will do it. It will. get it
together. And it will get it together because we're
tackling the problem as a nation, one nation, pulling
it together business, Government, unions keeping
the social wage, keeping the safety net, helping the
families, helping the low paid, helping the people who
will dco things with a depreciation allowance, helping
the people who want to invest in public infrastructure.
It's these common goals which I think will help induce
a better ambience and confidence in the community.
J: Do you think interest rates have reached bottom?
PM: Well, that's what you say.
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J: allow foreign banks a licence?
PM: Because I think that foreign banks are likely to
provide competition in the business area, that they'll
be innovative, that they'll cash flow finance, that
they will assess credit risk, probably provide
competition to business lending and the assessment
credito: cs, and I think they'll be a good competitive
force and can be a good competitive force for our big
banks.
J: Treasury-like document. Does this mean that you
are going to hold a much firmer view about Treasury
PM: Where are you from, you keep asking me questions?
J: American Press Association.
PM: The thing is it is not a Treasury document, it's a
social document.
J: But it has the old Paul Keating trade mark from his
Treasury days.
PM: Let me just tell you, it's a social document, a
document of social and economic change, and I think
that's what's important about it. But it is, of
course, laden with innovation and change. And to the
extent that you think I've brought you other things
laden with innovation and change, I'm please you think
this is the case again. Thank you one and all.
ends