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Transcripts from the Prime Ministers of Australia

Transcript 8658


Photo of Keating, Paul

Keating, Paul

Period of Service: 20/12/1991 to 11/03/1996

More information about Keating, Paul on The National Archive website.

Release Date: 15/09/1992

Release Type: Speech

Transcript ID: 8658

TEL: 15 c. ep. 92 15: 19 No. Ci2 F. C. 1
This is the full text of the Press Club address.
Because of time constraints the Prime Minister will
deliver an edited version.
When Dr Hewson addressed you here at the Press Club on
September 25 last year, he said this:
" The fact is, of course, that nobody has actually really
tried rational economics properly".
The implications of these words were not clear then.
The zealot in Dr Hewson had not entirely emerged.
Neither had Fichbag-k
But we've seen both now.
We've seen the launch of Fightback and several direct
hits scored against it.
But it has become clear that for all the holes which have
appeared, Fightback has not been allowed to go entirely
under. It cannot sink just yet, because in a very real sense
Fightback is just another word for Dr Hewson.
I think that may be why he takes every criticism of his
policies as personal abuse.
It is a case of " I am the Word and the Word is
Fightback". The Coalition can't sink Fightback without sinking Dr
Newson. So, unless the Coalition suddenly bites the bullet and
sinks its leader, Fightback is going to be still bobbing
around at the next election.

TIEL. S: ep 9 15 : 19 No .012 3.
Fightback is the alternative Policy package, the
alternative ideology, the alternative Australia.
It is only now that Australians are realising what the
full implications of Dr Hewson's Fightback are.
Of course a great many Australians have never accepted
the idea of the consumption tax at the centre of
Fightback. And it's true that a lot of business people have been
uneasy for a long while.
His own party has been uneasy.
The scrutiny we've subjected it to in the last six months
has made it, as I said, a pretty lifeless object.
But it's ticking. As long as the doctor's around it's
And I think in the last couple of months more and more
people have begun to wake up to the threat of the thing.
The nation I believe is coming to the rather chilling
realisation that Dr flewson has no intention of changing
his ways.
That he is utterly committed to all the policy
prescriptions of Fightback.
This is not a party platform in the conventional sense.
These are not broad objectives but detailed articles of
faith and collectively they will mean the most radical
uprooting of the Australian economy and society in our
history. Dr Hewson is not talking about building on what has been
achieved over a century, or even on those higher orders
of competition, production and social unity we have
developed in the last decade.
He's talking about doing it from Year One tearing it
down and starting again.
That's what I mean about the implications of those words
of his last year " nobody has really tried rational
economics properly".
Not Thatcher, not Reagan, not Fraser, not Roger Douglas.
None of them went far enough.
What does " properly" mean if not a more pure, a more
extreme version of what they did?
What does " tried" mean if not experimented?

IEL Sep .92 15 : 19 No .012 P .03/.
Experiments with a theory. Experiments with society.
With people's lives. Experiments with industries.
if these experiments fail, too bad.
By the word " properly" Dr Hewson meant economic Darwinism
the survival of the fittest. Or the luckiest.
This m~ eans that the main role for government is to ensure
that the " price signals" are correct. Governments should
withdraw. But governing a nation is not about withdrawing from the
important decisions the nation must address; it is-,,
fundamentally about knowing how to act to bring about
genuine, lasting change.
Dr Hewson claims that his Fightback package will change
the Australian economy and Australian society for the
better. This cannot in any way be true.
At its heart Fightback is essentially a switch in the tax
base from income to expenditure, and a clumsy, regressive
one at that.
It's a tax switch which lifts the tax burden on low to
middle income earners to benefit higher income earners.
it claims to reduce the tax burden on employment by
abolishing payroll tax but then substitutes for payroll
tax a much-he-avie-rtax on employment. And that of course
is a much larger Goods and Services Tax on the value
added by labour at each step in the productive chain.
But Fightback is about more than a tax switch.
it also contains policies on tariffs, industrial
relations, cuts in government outlays and health amongst
other things.
Zero tariffs is simply a textbook objective that is not
grounded in the real world or the real problems faced
by particular industries.
It is naive and destructive.
The Liberals -industrial relations pfoli ' cy is under attack
from large and small companies aike, from one industry
group to another. All see it as confrontationist, and
uncomprehending or workplace realities.
Dr Hewson proposes the destruction of Medicare. the one
comprehensive and simple health system Australia has had.
And why? For no better reason than to improve the
incomes of medical practitioners, specialists, private
hospitals and the private health insurance industry.

A significant proportion of the population would again be
under-insured. A significant proportion would again find
that they could not afford health services.
In quite unequivocal terms, Fightback is bad news for
Australia. The entire economy put at risk to deliver one political
objective a 30 cent marginal income tax rate for most
taxpayers. Yet the Government will introduce the same 30 cent rate
but no consumption tax.
Now let us look in more detail at Dr Hewson'* " tax
At the centre of the Liberal's Fightback is the switch in
taxation away from income to reliance on a goods and
services tax. This exercise involves shuf fling
billion in the name of assisting business at considerable
cost and disruption.
Fightback claims that business will be better off and
that every household will be better off.
Dr Hewsofl wants us to imagine that business can take its
slice without reducing the amount available to
households. It's a magic pudding policy!
Dr Hewson claimns that taxes on business would be cut by
But the revenue collected from the GST cannot be used
both to improve the prof itability5TbtiFusinesses to the
tune of $ 20 billion, and to pass on the benefits to
consumers in the form of lower prices.
Without the extra profitablity where is the benefit to
business? Without the lower prices where is the benefit
to consumers?
If business were to enjoy the $ 20 billion, the inflation
effect would not be 5 to 6 per cent, but much closer to
the full 15 per cent.
A moment's thought should convince anyone that
rearranging taxes cannot make everybody better of f.
But it can make for winners and losers. 15 Sep .92 15 : 19 No .012 F* .04: 1.

T: 15 iep 1 15 : 19 No. 01 2 P .05/ 1
And with Dr HewSon's GST there would be a massive
redistribution of income away from average families to
the wealthy.
Treasury has shown that 70 per cent of households would
be made worse of f to fund large gains for the rich.
For example, a family with children and both partners
working and earning $ 25,000 each would be up to $ 25 a
week worse of f. on the other hand, if that fam~ ily's
combined income were over $ 90,000, they would find
themselves up to $ 105 a week, or up to $ 5,460 a year,
better of f.
Fair go, Hewson-style. Incentive, Hewson-style.
It is claimed that the introduction of the GST at the
expense of other forms of taxation would improve
incentives to work, to save and to export.
But there is no evidence for this. People don't work
longer and harder simply because their consumption rather
than their income is taxed. Changes to taxes have only
marginal effects on overall saving behaviour. And,
because the exchange rate is free to adjust, there is no
evidence to support the view that exports would lift.
The effects are simply too small to measure.
And certainly too small to warrant all the costs and
disruption to Industry and the community that would come
from a GST.
This is exactly what was found by Chris Murphy, the
economist who was asked by Dr Hewson to do the modelling
for Pightback. on the crucial assumption that workers do
not seek wage increases to compensate for the price
effects of the GST, Murphy's results show that a switch
from income tax to the GST has small effects on output,
the current account and employment. In fact, for the
first five years, he found that production would actually
fall and unemployment rise.
Professor John Freebairn from Monash University has
argued that a switch from a broadly based payroll tax
system to a GST would have a minimal impact on the
economy. Treasury's analysis of the major elements of Fightback,
and again on the assumption that the compensation package
was adequate, show the overall impact on the economy to
be very small. TEL

The basic message coming from these studies is that there
is likely to be very little impact on employment, or
output or the balance of payments from the money
shuffling exercise.
a macroeconomics exercise, it simply doesn't rate.
Crucially, however, the GST would have a profound
negative impact on the economy if it disrupts prices and
wages. If firms used the GST as an excuse for raising
prices by more than the direct effect of the taxes, or if
employees refused to accept full discounting of their
wages for the effect of the GST on prices, then the
economy would be severely damaged.
But why would workers not seek compensation for higher
prices? After all, the great bulk of workers ls under Dr
Kewson's proposed compensation package. Of course they
will try to retrieve their position in the field.
And if this happens, Chris Murphy's results show that GDP
would fall by 4 per cent in the first 5 years. Prices
would be sharply up. The unemployment rate would be 2
percentage points higher!
When Dr Hewson Is pressed on the damaging effects of the
GST, his retort is that Fightback is more than the OST,
it's also about industrial relations, eliminating all
tariffs, microeconomic reform, health and so on.
Everyone agrees that we need to improve the
responsiveness of the workplace. Indeed, this Labor
Government has worked with employers and unions to
achieve just this. The results have been coming through
with agreements like those at Sheraton, Email, Toyota,
Concrete Constructions and so on.
In the media recently, we have seen how such agreements
have been reached in many successful businesses through a
spirit of cooperation. These stories have 81s0 touched
on the real fears that many businesspeople and workers
have about the opposition's approach to industrial
relations. The Coalition has an ideological aversion to the
cooperative approach now being generally applied to get
the best from our workplaces. The Coalition's textbook
offers the Darwinian prescription.
More Strength to the strong.
For there is no doubt that those in a strong bargaining
position would benefit from the free for all.
15 .113ep -9.2 1' 19 No .012 P OE--

T1EL5: Sep .92 15 : 19 No .0121 P .07,' It.
But most would lose.
The safety net for low income earners would be ripped
away. Those without long-established and firm links with the
labour force would lose out.
Women would number heavily among the losers. And young
people. Business would lose from a renewal of the discord and
uncertainty that was crippling industry a decade ago.
Australia would lose.
This Labor government has created industrial harmony and
low inflation through policies of cooperation.
Under Coalition policies, the risk of excessive wage
demands and higher inflation would return with any
strengthening in the labour market.
And the only instrument that the Coalition has to
maintain low inflation would be tight monetary policy,
higher interest rates. Australia would be condemned to a
long period of very high unemployment.
And we should reflect on this at the same time as he
introduces the GST price hike, Dr Hewson would abandon
the i ncomes policy which has so effectively reduced
The opposition says that jobs will be created because
Fightback is pro-business.
But are industrial conflict, high interest rates or
higher inflation pro-business?
Fightback is a massive and disruptive accounting exercise
for little worthwhile purpose.
According to the estimates in Fightback, the GST would
bring in $ 27 billion.
Although Fightback involves quite a few minor changes,
this money in essence is used for four purposes which add
up to $ 26 billion:
SFirst, compensation for the impact of the GST on
pensions, fami~ ly allowances and the States amounts to
about $ 4 billion. TEL

1Second, the CST replaces wholesale sales taxes at a
cost of $ 9 billion.
1Third, payroll taxes are abolished at 8 cost of $ 6
SFinally, petrol excise is abolished at a cost of $ 7
Essentially we have a new tax to be paid by business to
replace some existing taxes.
This is Dr Hewson's great bargain.
He likes to focus on the seven taxes that would be
removed to sweeten the pill.
But let us look briefly 8t the rationale for these.
Four of the taxes the training gua ranitee levy, the coal
-export levy, customs duE-es-, and the-tax on lIump sum
superannuation would only have a limited impact on
revenues and, indeed, on costs to business.
The remaining three are more significant elements of our
tax system. However, the supposed advantages of the OST
are illusory.
First, the wholesale sales tax. No tax is perfect, and
this one isn't. But the WST has distinct advantages over
the GST:
1Wholesale sales tax is levied at different rates for
different items which means that the great bulk of
basic necessities fresh fruit and vegetables, meat,
clothes, electricity bills, and so on are tax exempt.
1Compliance costs for the WST are low with very few
businesses required to pay.
Dr Hewson also says he will remove the excise on petrol.
But this is a sham because it leaves a very large hole in
road funding which will have to be made up elsewhere.
The National Road Transport Commission ( NRTC) has
estimated that the cost of running Australian roads is
around $ 4.3 billion while the GST applied to petrol will
only raise about $ 750 million. This leaves an amount
equivalent to 18 cents per litre of petrol that has to be
raised from Australian motorists.
So where will It come from?
A tax on kilometres travelled would be akin to the petrol
excise without providing any incentives for fuel
efficiency. 15 :-ep .92 15 19 No .012) P I

Higher registration charges would have to be ve high
and extend to passenger cars.
All in all, the abolition of petrol excise is a poor
deal. It Is in Fightback largely as 8 sop to the National
Party. Even here, the farmers who already get the Diesel
Fuel Rebate get a lousy deal because they don't pay
payroll tax and they will be slugged twice by the GST
once as collectors and once as consumers.
Finally, the payroll tax levied by the States. This is
the proposal that probably attracts the most interest
from business. But, as Professor Freebairn has pointed
out, there is little difference between payroll tax and a
tax on the value that is added to products by labour.
The economic effect of the payroll tax is very like a
uniform GST and substituting one for the other will
contribute very little even if the inevitable problems
with the States could be resolved.
In summary, replacing some existing taxes with a GST is a
costly accounting exercise the nation can't afford.
And small business would pay dearly.
They typically do not benefit from the removal of current
taxes because of the relatively high thresholds.
But they would have to keep records to comply with the
GST. Overseas studies have found similar taxes to be
very regressive in that compliance costs can be over 250
times greater for small business than large business in
relative terms.
At present small business doesn't even pay most of the
taxes that Fightback promises to abolish:
I According to ABS statistics, there are currently
832,000 businesses in Australia. Most of these are
small businesses and almost all will have to fill out
their 09T forms.
I~ But of these, over 700,000 do not pay payroll tax.
I And only 20,000 are required to pay the WST while
perhaps twice this number will be in the WST system in
800,000 small businesses are destined to become the new
tax collectors for Dr Hewson.
To paraphrase a tax expert from New Zealand, they can
forget about Sunday afternoons with the family.
MICROFCONOMIr REFORM T: 15. SOep. 15: 1'? No Al12

Dr Hewson also likes to argue that business will benefit
from other aspects of Fightback.
Like the conflict in his blueprint for industrial
relations. Like the application of his survival-of-the-fittest
philosophy to the car inldustry.
Indeed, like much of Fightback, just what Dr Hewson
intends on micro reform is poorly spelt out.
For " illustrative" purposes, Fightback sets out the
benefits that may flow from reforms examined by the
Industry Commission.
But what are these reforms?
They fall into two groups, reforms where this Labor
government has already made significant progress, and is
continuing to implement change, or reforms that are
primarily the responsibility of the States.
According to the industry Commission's list, reforms to
rail transport would have the single biggest impact on
GDP at 1.5 per cent. These reforms in part involve the
national freight system which is currently being
transformed into a National Rail Highway as announced in
One Nation. The rest of the IC's proposals centre on
suburban rail which, according to the IC analysis, would
be made more efficient with different pricing policies.
Would Dr Hewson take over this area of State
responsibility? Would he increase suburban rail fares by the 150 per cent
that the proposals imply?
The measure on the IC's list with the second largest
impact is assistance to the rural and manufacturing
most of the benefits to be had here will flow from the
Government's measured reductions in protection,
reductions that will leave vibrant industries at the end
of the process.
Dr Hewson's crude approach to the car industry, to the
TCF sector or to sugar would in fact see less production
in Australia, not more.
in aviation, the waterfront, electricity and so on it is
this Government that has built the cooperation of the
parties involved so that genuine progress is achieved.
15 sep 92 1c-: 19 NL) 12 P 10/ 1

Business is understandably sceptical that the benefits
claimed in Fightbeck can be achieved and have every right
to be apprehensive about the confronitationist approach
being advocated by Dr Hewson.
Quite simply, Dr Hewson's claims on the benefits of his
microeconomic reforms evaporate under scrutiny. They are
like his claim of 2 million jobs to be Created. This
claim was never modelled in Fightback and under
questioning it too diminished to a " guesstimate".
I said that the GST is principally about replacing a
number of existing taxes with a new one.
There are also the income tax cuts of $ 12 billion. These
are more than accounted for by bracket creep, the
increase in the company tax rate and, mainly, the cuts to
outlays. These cuts cannu~ ot and will not be funded by the GST. As
the tabulation earlier shows, $ 26 billion of the $ 27
billion proceeds of the GST are spent abolishing other
taxes and for the base compensation package. The $ 12
billion of tax cuts will have to be funded by cuts in
Government spending cuts that will decimate social
policy. The Treasurer and Minister for Finance have pointed out
there is a huge hole in Fightbeck's figuring to the tune
of $ 6 billion in the year of implementation.
it is a hole which removes most of the benefits Fightback
is supposed to provide.
The expenditure cuts that Fightback proposes deserve the
highest scrutiny.
Of course, many are not spelt out in any detail but rely
on inroads into fraud, inefficiencies and waste.
This is a noble objective indeed, it should be part of
any good administration's operations but to suggest
that billions of dollars can be found from such measures
after the years of cutting into outlays is totally
what this emphasis does demonstrate is that the savings
in Fightback are shonky. In truth, if Dr Hewson is to
make the real savings upon which Fightback depends, he
will have to cut, into real programs.

However, there are a number of areas where substantial
cuts into programs are proposed up-front. These cuts,
ostensibly designed to stop people rorting the social
security system, would in fact seriously weaken its
integrity. Government has to be vigilant against those who attempt
to take advantage of the system and, indeed, through
increased resources for review teams and the like, we
have developed one of the most targeted systems in the
world. The fact that a few may secure benefits they are not
entitled to does not justify measures which seriously
hurt those in genuine need.
Benefits have been increased substantially for those in
need. For example, pensions have been increased by over 15 per
cent in real terms under this Government after falling by
2 per cent under the previous Coalition Government.
Unemployment benefits have been increased by over 25 per
cent under Labor after falling by almost 20 per cent
under the Coalition.
At the same time we have greatly improved the focus of
expenditure. At the ANU. Deborah Mitchell has found that while
expenditure on social security in Australia as a share of
GDP was the lowest of the ten OECD countries she
examined, it was very successful in achieving its
objective of alleviating poverty.
Fightback's contempt for the low paid and the dependent
ignores such conclusions.
It fails to recognise that, compared with other
countries, we spend a relatively modest amount on income
support. It fails to recognise the success in targeting that has
been achieved delivering substantial benefits for a
modest national outcome.
And most importantly, it does not recognise the damage
the expenditure cuts it advocates would do to the system.
The feature of many of the cuts to outlays is that they
would hurt groups in society which are least able to
avoid them.
Fightback would find $ 745 million by Cutting benefits to
the unemployed. TEL 15 Se p 9 2 15 1 N L-1 C, 12 F 12 I

T: 15 Se 15 : 19 No 012 FP. 1 3: 1
It would stop the sole parent pension when the youngest
child reaches 12.
it claims to find $ 127 million from cutting access to
disability pensions.
It would increase the pension age for women to 65. Many
of these women have had no opportunity to accumulate
super or other forms of retirement income and it œ 8
totally unfair to suddenly introduce this measure.
All this simply reinforces the regressive nature of the
GST. Prices overall will rise by 5 to 6 per cent; but the
prices of those goods and services that are necessities
for everyday living for the less well-off in the
community will rise by much more.
The great majority of OECD countries with GSTs or VATs
have multi-rate systems precisely to allow food,
essential services and the like to be taxed more lightly.
Even John Major recently ruled out extending their VAT to
zero-rated items of gas, electricity, food, and
children's clothes and footwear.
Dr Hewson is too pure for that. Dr Hewson is going to
try rational economics properly.
But increasingly, Dr Hewson is coming under pressure to
exempt more items.
Education services are supposed to be zero-rated, but
what constitutes an education service? What books are
zero-rated and which ones attract the OST? What
constitutes a GST-free school lunch?
Medical bills are to be zero-rated, but does this extend
to wheel-chairs and sunscreens?
The building, tourism and financial Industries all have
legitimate concerns with their treatment under the GST.
it is a system riddled with inequities.
The key difference is that under wholesale taxes, we are
able to effectively quarantine the great bulk of
necessities fresh fruit and vegetables, electricity
bills, clothes, and so on.
The Liberals are not prepared to see a similar targeting
under the GST because it would interfere with the ideal
model in the accountant's mind.

TEL 14
And the result is that it is precisely the necessities
that would face the largest hike in prices.
The price on milk up 9.61;
Fresh fruit up 10.1%;
Electricity bills up 10.7%;
Large hikes in rates, postal and telephone charges up
8.1t. Ladies arnd gentlemen
I haven't today covered all aspects of Fightback by any
means. Even though policies are frequently poorly
specified, it touches a wide range of issues.
And for so many of these issues, Fightback represents an
enormous step backwards.
Nowhere more dramatically than In policies affecting
Woman. Both parties talk about opportunities and fairness for
women, but only Labor has the policies and the track
record. Labor introduced sex discrimination and affirmative
action legislation. Labor has increased the number of
child care places five-fold and provided generous fee
relief. 60% of the 1.5 million jobs created since 1983
have gone to women. Labor has supported a wages system
that saw women's average wages increase from 67 cents to
83 cents for every dollar earned by men.
The Coalition cannot make the same commitments to
promoting equality for women. Its enterprise bargaining
system would certainly see a decline in their wages.
where our aim is to give women a choice about whether or
not to join the paid labour force, Dr Hewson would force
many women to work.
Older women would be forced to stay at their jobs longer
because of Dr Hewson' a rapid phase-in of an equal pension
age for women and men.
Mothers would also be big losers under Dr Hewson ' s
policies. The cost of child care would rise because it
would be subject to the GST. 10000 women would no
longer get their Family Allowances. Managing the
household budget would be made infinitely more difficult
as the necessities of life increase in price with the
GST. 1 t, e P I I Nu i i

TEL: I e YUi IrL F
With Fightbeck, the agenda would be pushed back on the
environment, on young Australians, on education and
training, on policies relating to our ethnic communities
and to Aboriginals, on science, on sports, and the arts.
These are issues which require detailed responses in
their own right and my Ministers and I wvill be addressing
them in detail in the near future.
HiEALTZH I would like to finish on health policy because it ia
perhaps this issue that epitomises the blind application
of the ideology that underpins Fightback.
Australia currently uses about 8 per cent of its
resources on health. This is close to the OECD average
and well below the figure in the United States of 12.8
per cent.
With these resources, we are able to provide a first rate
health system.
-Medicare provides quality care based on the principles of
ef-ficiency and access for all Australians.
As with any large system it benefits from the sort of
periodic review and refinement that we undertook most
recently in the Budget.
It is a system that works and works well.
The Opposition's policies would effectively destroy
Medicare. The replacement would be expensive and
iniquitous, an alternative introduced in the name of
choice and market efficiencies.
The provision of health care is not like any other good
or service in Dr Hewson's economic rationalist model.
The unrestrained market will not provide effective health
services for everyone while keeping costs contained.
In fact, Fightback would see costs soar.
It would largely hand over responsibility for setting
health costs to the AMA. Dr Hewson said as much
explicitly to the AMA at its Council.
It would do this by firstly removing incentives for
doctors to bulk-bill by restricting bulk-billing to
health-card holders only.
At present, about 70 per cent of GP services are bulkbilled
at 85 per cent of the Medicare schedule, a
practice that is cost effective for the doctor and the
system as a whole.

TEL: 15. Sep .9 15 : 19 N,. 1C12 P. 16
Moreover, Fightback would allow gap insurance for costs
up to 85 per cent of, not the Medicare schedule, but the
AMA schedule, the schedule set by the doctors themselves!
GPs would have little incentive other than to charge the
great majority of their patients the AMA fee and, because
the current AMA schedule is some 20 30 per cent above
the Medicare schedule, patients would be obliged to take
out private insurance to avoid hefty payments at every
trip to the doctor.
Without insurance, patients would be paying about half of
their medical bills. And these would be the people who
are currently benefiting from free health through bulkbilling.
Treasury has estimated that the overall impact on
household health bills would be an increase of 22.6 per
cent. The higher costs would affect everyone, but the hardest
hit would be those least able to afford it.
Dr Hewson would provide some tax credits for private
health insurance, but the amount being offered would be
less than half basic medical insurance Costs, let alone
supplementary cover or gap insurance.
Many would simply not be able to privately insure
themselves and their families.
Two classes of patients would result with doctors
returning to the days of taking on charity cases.
Fightback's health policies would see us move towards the
expensive US system where 35 million Americans have no
insurance or access to services.
And why does Fightback contemplate the change? Not to
improve national efficiency. Not to improve social
equity. Not to improve quality of medical services.
The change proposed by Dr Hewson stems from his
insistence that market forces be imposed on our medical
system. Bulk-billing is ideological anathema.
The doctors, the pathologists, the radiologists, the
private hospitals all stand to benefit. The low paid,
the frequent users of the system, including women and the
elderly, lose. The notion that a good society is
measured by the degree to which all are provided with
care and the necessities of life is abandoned.
Nowhere are the obsessions of Dr Hewson plainer. Nowhere
is Fightback more obviously regressive.
This is " rational" economics " properly" applied,

Transcript 8658