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Transcripts from the Prime Ministers of Australia

Transcript 9592


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: 17/05/1995

Release Type: Speech

Transcript ID: 9592

Distinguished members of the conference.
I am very delighted to be able to come, on behalf . of the Government, and
speak to you and to record how appreciative I am, and I think the Government
is, of the fact that you are a body which does look beyond sectional interests
to the broader national policy issues and, as Donald said quite eloquently,
though some of these things are not universally understood in your
constituency, it is nevertheless a matter for you as a body to be able to
articulate them to understand, first of all to put together a comprehensive
approach to policy, to articulate it and to make it relevant to your
constituency. I don't think there is much more a Government could ask of you. But, more
importantly, there is not much more your constituency can ask of you
because we are in a complex world these days. A world of great opportunity,
no doubt, but a complex one and when we talk about agriculture today, we
are talking about all sorts of things not just commodity prices, but
competitiveness and we are talking about best practice and transport and
competition policy and infrastructure and the environment, the global
economy, the US Farm Bill, interest rates, the drought you name it. It is a
very large panoply of issues when one is speaking about rural industry and
its problems and the problems of adjustment.
But I think what is encouraging, certainly to me, has been a willingness on the
part of the rural community, the farm community, to confront these great
economic challenges and recognise the need to make greater changes and I
think one of the strong characteristics of Australia in this last decade or so,
has been not simply a willingness to change, but a willingness to keep it up,
to embrace change and to keep on going and I think that is very important.

A lot of countries are somewhat resistant to change. Their political system
moves away from the prospect of change. As a consequence, their national
economies and societies are not getting the kick along they would otherwise
have if their community was more adaptable to change and more prepared to
Now I think that in your community, a lot of that has come from leadership, it
has come from the leadership of this body and let me just take this
opportunity to pay a tribute to the leadership of the NFF, in
Donald McGauchie and Rick who is leaving you I know, it will be a great
loss to you because he has played a really useful role in defining the issues
for you as a community, as a constituency and he has had the respect of the
Government and he has been able to relate to us in a way that I think has
been very effective indeed. So no doubt he will be missed.
Could I go on and say that it is probably very unlikely that the NFF and a
Labor Government find themselves as bedfellows, but in quite a number of
issues we have found ourselves in that position. Mainly because this
Government has always been interested in tackling hard issues and trying to
deal with them at source and, I mean, basically we have always been, if you
like, vulnerable to a good argument. If someone has got a good case, we will
listen and if the case is rational and its logical and it has all those others
societal characteristics that make it important, then I think we are always
there to listen and try and make adjustments and quite a few we have had.
We have made a few, of course, in this Budget and I will come to that in a
moment. But I was interested in Donald's speech and a couple of things he said.
He said, talking about the changes, the NFIF has already achieved
considerable success and he mentions the issues which affect in a very large,
and perhaps dramatic way, the whole of the rural sector. The decision to float
the Australian dollar, the deregulation of financial markets, reductions in
protection for all industries and this was always the big bug bear of course.
It was always a matter of great amusement to me in the 1 970s when I came
here. Of course Jack McEwen was still king of the castle round here and
Alan Westerman was still sort of one of the princes of the bureaucracy and
they had this scam running for years that they were going out to
manufacturing industry, doling on protection, while they were out there talking
to the farm community about what a terrible problem it was.
At any rate, we were the ones who finally knocked it over and in what became
obviously, through people like Bert Kelly and others, the identification of the
burden of tariffs on agriculture became very clearly understood in the late
and early 1 980s and by actually getting the tariff wall down, that has made a
very large difference to agriculture.
He mentions progress in the movement away from a centralised wage fixing
system towards enterprise agreements. Broad political recognition of the

need to minimise pressure on interest rates by reweighting policy onto fiscal
policy. He mentions the changes in 45D and E of the Trade Practices Act
and the common law and negotiations of new trade arrangements such as, of
course, Uruguay and APEC.
And then he mentions the achievement of particular farm sector goals above
that, national competition policy but then income equalisation deposits, farm
management bonds, changes to drought assistance, review of the pastoral
industry award etc. Sales tax exemption for direct farm inputs, a better result
than other sectors in Native Title legislation, maintaining the diesel excise
rebate and extensive schools education program etc.
Well, the NFF has been involved in all these issues. But in making the point
about us being strange bedfellows, of course, they were all done by this
Government. All these decisions were taken by this Government.
So we have done a lot of things together and they have been of material
assistance to the farm community and they are the big brush things. You
could imagine how we would be going today at an exchange rate of
cents. And that, you see, getting that core competitiveness up,
Australia today is 40 per cent more competitive than it was in 1983. Not 4 or
14, 40 and that has come about by changes in exchange rate, productivity,
wages etc.
But, the big challenge in the 1 980s, was to turn that big nominal depreciation
of the exchange rate into a real depreciation. I mean any country can have a
competitive depreciation of its exchange rate. We have watched Britain do it
against the European economies now for 20 years, but not anyone can have
a real depreciation, that is washing the price surge out of wages which is
basically what we did under the Accord.
So that core competitiveness which all of the primary export sector now
enjoys, from the exchange rate, happened because of the adjustment to
wages, a terms of trade adjustment for productivity to wages, in the course of
the 1980s. And under those Accords, the fact that we had pulled down fiscal
policy so dramatically, we were able to provide tax cuts and those wage tax
trade-offs of the 1980s, turned that large nominal depreciation of the dollar
into a real depreciation.
That happened, simply, because when I became Treasurer in 1983,
John Howard left me outlays at 30 1/ 2 per cent of GOP an Australian record.
And, as you know, it was a lift in the public sector in the 70s, under the
Whitlam Government and then the Fraser Government that dislocated private
investment and that put a very big call on savings. But by reducing it to
23 1/ 2 per cent of GDP by the late 1980s that is a 7 per cent of GOP
reduction and spending, and in today's dollars that is $ 35 billion we were
able through growth and through revenue and through those outlays changes
to fund a large continuing set of tax cuts and it is only by that way that we
didn't go the way of other countries with a set of competitive depreciations.

So you were competitive for five minutes and you were uncompetitive five
minutes later as wages caught up with prices. And I think that is one of the
very great changes and I am very sympathetic to Bill Kelty and Martin
Ferguson and their ACTU colleagues, when they say we haven't had much
thanks for it, have we? And the answer is, they haven't.
But they did get in there for over a decade and try and manage it down. The
deal always was, of course, that we would compensate them by employment
and in the period between 1983 and now, we have had about 27 per cent
employment growth.
As a consequence, real household disposable income is 40 per cent greater
today than it was in 1983 because there are more people in households in
work. And so that is how that important national economic policy making was
made. The implicit arrangement of wage restraint for growth and employment
growth being the essential element of the Accord and it is by that method that
we have got that competitiveness back.
We are now seeing a much more, but lower tariffs, contestable economy. In
fact, a quite highly contested economy now. So now productivity is coming
out of the pores of the skin of the economy, naturally. In other words, we are
holding inflation down now, naturally. We are not holding it down with a
draconian monetary policy, killing growth and activity. We are holding it
down by the natural productive forces being, if you like, encouraged in the
economy and a change in the productive culture of business.
We have had very large productivity numbers in the last few years, as that
whole productivity surge and cultural change has gone through Australian
industry and it has gone through the farm sector as well.
I remember in the 1 980s, you know Margaret Thatcher was boasting about
and 6 per cent productivity and it was coming by massive lay-offs in British
industry by huge unemployment. But last year we had 4 per cent
productivity with massive lay-ons not massive lay-offs massive lay-ons.
4 per cent employment growth. Still producing 4 per cent productivity, which
is all the world of difference between the policies of this Government and the
policies of the British Conservative Government. So that at the end of the
section, she ended up with massive unemployment, an underclass, a divided
society and, in the end, no structural change to productivity. Whereas what
we are having here, is a long term structural change.
So I think that the way we can, if you like, help the farm community most
beneficially, is through these big brush changes to competitiveness,
exchange rate, wages, inflation, productivity, competition and, of course,
getting proper market access or the best market access we can through areas
like the GATT and, of course, through APEC.

1 attended the OECD meeting in 1986 when we first got agriculture into the
OECD communique and I had a big brawl with Clayton Yeutter and
Malcolm Baidridge and a few other people at the time because this was the
moment of truth if it didn't get into the OECD communique of that year, it
wouldn't get into the G7 summit in Tokyo.
We pushed and shoved and stood the French up and the Europeans up, and
we did squeeze it in with the support of the United States and then as a
consequence of relations we tend to build up over time, the then
Under Secretary of State for Economic Affairs, who was Reagan's Sherpa at
the summit, got it listed on the G7 agenda for the Uruguay Round and that is
how agriculture got into the Round.
Then we prosecuted that over seven years to get a result which while not all
we were seeking was going to take a lot of the pressure off the kind of
subsidies that we had seen growing and production and export subsidies we
had seen growing in Europe and in North America.
And here we are working together now Bob Collins and Bob McMullan with
you and others on the 1995 Farm Bill to try and again make certain, or ease
the pressure at least, against the Australian farm -sector from these other
sectors who won't expose themselves to the kind of competitive influences
that we have been prepared to expose ourselves, too.
So right through those years, we have learnt together and I think, again,
access remains one of the great issues for Australian agriculture and we have
sought to do our best with it.
Let me say a couple of things about the Budget and perhaps then come back
to some farm specific things.
The Budget, the other night, did respond to a desire and a wish by many
sectors, including your own, for a reweighting of the policy instruments off
monetary policy and on to fiscal policy and we have taken the Budget from a
deficit of over $ 12 billion to a surplus of $ 700 million this year and next year
we are into a surplus of about $ 4 billion and the following year a surplus of
$ 7 billion, in prospect.
What this means is that we have seen a great change in the bond selling
program of the Commonwealth. Last year we sold $ 21 billion worth of bonds
$ 21,000,000,000. This year, as a result of the Budget, that program will be
reduced to $ 6,000,000,000. So, in other words, as a consequence of the
Budget we have diminished the bond selling program by $ 15 billion, which is
a mighty sum and that is why long bond yields fell from over 10 per cent
ten days ago, to under 9 per cent today. And because if there is less paper
around, the paper gets more valuable, the price of it rises and the yield drops,
the interest rate falls and that is what, of course, engendered then further
changes in retail interest rates towards the end of last week.

So we have already had that effect and we have this debate about whether it
is recurrent changes or asset sales, but I thought the man from Moody's not
that I quote them very often said look we are not particularly interested how
it's done, what we want is to know how the bond selling program is going to
be, what is the consequences for that. Well that is pretty clear form now. But
the other point is next year, without any asset sales, we will be in surplus on a
recurrent basis.
Now the changes we made to the recurrent budget are around $ 3 billion this
year and $ 4 1/ 2 billion next year. So we are over 1/ 2 per cent of GOP in
recurrent changes this year and next year we are just under 1 per cent of
GOP, which is a fairly big change.
And the important thing is that the underlying level of outlays drops to
24 per cent of GOP in two years. In other words, in two years time we will be
back to the outlays levels that we had before the Whitlam Government, or
around at the time of the beginning of the Whitlam Government. Back where
we were in fact in the late 80s, which was at 23 1/ 2 per cent of GDP.
Now you know you don't need to be a student of public policy to know since
those years you have seen an enormous change in the services the
Commonwealth provides in education, and in health, and in income support
and yet we are doing it. A much more sophisticated public sector, providing
much greater serves, yet we are doing it for the same outlays to GOP levels
largely and underlying terms as existed before the Whitlam and Fraser
Government's started spending a much higher proportion of GOP on
outlays. Now, this needs to be understood I know a number of you have
said " well, the Government should cut outlays more". Well look, there is
one thing I would say to you, and that is this: I have sat through, now I
have delivered 8 Budgets and 7 May Statements that is 15. We have now
had 13 budgets, 8 May Statements and 3 Prime Ministerial Statements.
That is 24 major budgetary statements, and barring 1 or 2 of those
exercises, I have sat through all the Expenditure Review rounds, across all
of the outlays. Ralph Willis, Brian Howe and myself are the longest serving
officers of the Commonwealth in public spending if you shook the Finance
Department by its toes, or the Treasury by its toes, no-one would drop out
of it who has served in more Expenditure Reviews than the 3 of us. And let
me just say this to you, because one of the things you ask us to do is to
listen and comprehend problems, and we do we listen to what you say,
and we take notice. And even if it doesn't fall on us obviously on the first
moment, we listen and we get the picture. And I want you to listen to this,
and just understand it you cannot cut 2% of GOP from outlays any more.
It is just not possible. You can't cut $ 10,000 million from outlays now. You
can't take the Commonwealth underlying outlays to 22% of GOP it is
impossible, without cutting into pensions.. for instance, one of the first
things that would go would be RAS, straight off the blocks. All of the
industry assistance things would go before income support goes.
Payments to industry the transfer payments, payments to schools which
are holding up these massive participation rates in secondary school, and

into tertiary and vocational education they are all the sorts of things that
will get hit. Because payments to the States we now give them a real
terms per capita guarantee, which in a sense, isolates that area of the
Budget from reductions we have got long-term arrangements with
defence, so you take defence and the States out of there, to get into the
rest of it, you have really got to savage the outlays in a way which would be
unconscionable. Now, the underlying level of these outlays is now roughly 25.4% to 25% of
GDP. Now John Howard, my opponent, is running around saying ' We won't
touch revenue". He claims to want to lead the country, but wants to give up
one instrument of financial management he won't touch revenue " I'll do it
all on outlays". Then he says " we should be cutting outlays" or Costello is
saying for him " by up to $ 10 billion". Well, you can't cut outlays by up to
billion without cutting pensions, income support to the families,
payments to schools or the industry programs, which are important sectors
of industry. That game is up. You can certainly go back through it, and
continue to put pressure on the efficiency of delivery, you can change the
priorities of programs, you can yield savings we have done that with a
savings round this year of $ 1.5 billion. We cut outlays by $ 1.5 billion, but
there is a lot of unavoidable new spending in the Com~ monwealth, and there
are some discretionary policies so that the net changes and outlays were
$ 700 million, but the actual program of cuts was $ 1500 million. So, it was a
very large set of cuts taken by the ERC over 9 weeks, or 10 weeks. So, it's
just not... . you can go beyond it, but you won't have any political authority
no Government in this country would have the political authority to go
beyond it, and when the Coalition tell you they will cut waste and
duplication and they will cut $ 10 billion out of outlays, just don't believe
them. It's just tripe. Nonsense. And take it from somebody who had to sit
through it for 10 weeks a year, for 12 years it just can't be done. And that
is why we say that John Howard has given up economic policy, because
when you give away receipts changes to receipts and you are kidding
everybody you can make major changes in outlays, what you are really
saying is that you are abdicating your role as a financial manager, because
all the weight will then do is shift to interest rates.
Now, that change I have mentioned to you the bond selling program going
down from $ 21 billion to $ 6 billion has taken a lot of the pressure off
interest rates which is one of the things your sector needs, it's one of the
things of value to your sector and we hope that trend we have seen last
week will continue, and that there is a genuine change in sentiment in
financial markets as a consequence of the Budget. The problem we are
trying to meet is not to reduce spending this year it was not about trying to
hold down... . we didn't use the Budget as a demand management tool,
because the 3 monetary adjustments of late last year have basically done
that trick, you might know, that in the year to the September quarter, the
economy was growing at 6.5% a year, and expenditure all spending in the
economy was running at Now you don't have to be an
econometrician to know that if the spending is running at 8.5% and product

is running at 2% is going to be satisfied by imports. And at it
was putting too much stress on the country's productive capacity. So, we
needed to slow it down. So, in the Budget, we are forecasting 3.75% for
GDP, so it's a long way from And those monetary adjustments last
year, were taken at the right time and we made them large adjustments
one percentage points, or 2.5 altogether: 2 of 1 and 1 of 0.5% to
actually get that slowing into place. So we don't need the Budget for an
immediate slowing of the economy what we needed in the Budget is a
medium term change for savings, because our problem is that we have got
a current account deficit which is running about 2% of GDP above the point
where it basically pays for itself. Each year, in the 60s and 70s, we were
running a current account deficit of 2.5% of GOP, but we had capital inflow
equal to 2.5% of GOP. In other words, we were able to afford a current
account deficit of 2.5% of GOP, and not aggregate debt. That changed in
the late 1970s and the early 1980s, when we got so uncompetitive, when
the terms of trade ran against us, when we had a wage explosion, and
double-digit inflation for most of the decade, by that stage the current
account was running it started at 6% of GOP in 1980-81 not the number
you will hear John Howard tell you about, but that's what it was, 6% of GOP
in 1980-81. In other words, the cat was out of the bag then. And we have
been running, on average, at 4.5% since.
So, if 2.5% is sustainable, and the average is 4.5% and that's not
sustainable, the problem is 2 percentage points of GOP. In other words,
our savings have fallen as to around that amount so as not to be able to
accommodate the investment phase we need for employment, growth,
activity. And the reason it fell, I think principally, was double-digit inflation.
Once double-digit inflation came to Australia, it took about a decade to
teach Australians that it wasn't any point putting money in the bank,
because the tax on the nominal interest rate, after double-digit inflation,
was negative reals, so they stopped saving and they started buying flats,
apartments, holiday houses etc. And we inculcated in a generation that
there was no point in saving. It is going to take now, with a much better
and lower inflation performance, some time to change that, so as a
consequence, we have developed a savings pothole, which started from
that period of double-digit inflation a decade or more of double-digit
inflation and what the Budget is about doing is doing that is to try and
overcome that problem. Let me just briefly explain how it happens. In the
Budget and the next couple of years, we will see a turnaround of about 4
percentage points of GOP. And let's say that part of it is cyclical, and part of
it's structural. The other great change we had in the Budget was to extend
superannuation beyond 9% to 15% for every working person, and we have
encouraged people to put 3% of their personal contributions away, which
we will then match with a 3% tax cut equivalent paid into their
superannuation accounts. This will add 6 percentage points of wages to
the 9% under the superannuation guarantee charge. This will take it to
Now, at the moment we have got $ 186 billion in super funds, and the
Treasury estimate that by 2020, we will have $ 2000 billion in super funds

$ 2 trillion, It was $ 40 billion in 1983, it is $ 186 billion now, and they
estimate that it will go to $ 2000 billion..
But that's 2020, and our time horizon is a bit shorter than that, and if we are
looking at the year 2000, the savings and super would be less, but still very
strong. Now, what the Treasury estimate is that by 2020, we will add the
equivalent of 4% of GDP to savings, but they also estimate that by the year
2000, we will add 2 percentage points of GDP. So, lets say that on the
Budget side we have added 4% by the year 2000, on the super side we
have added 4% by 2020, but if we are talking about 2000, we have added
2% on super and 4% on the Budget. In other words, in the Budget of last
Tuesday week, we put in a 6 percentage point fix for a 2 percentage point
problem. Now, let me just say something about the Budget: not all of that is
structural, some of it is cyclical as the economy grows, the cycle changes,
revenue and outlays change, and at any subsequent slowing, that would
affect the cyclical part of the Budget. Well, let's take all of the cyclical
calculation out of it, and call the 4 percentage points of the Budget A
good solid 2% and underlying and super with an underlying 2% gives
you a very solid foundation for 4% savings to GOP to meet a 2% current
account problem. Now, that's why the Budget was important, and that's
why the Government can be relied upon to do a professional job as
always on-the hard problems.
And let me say about super now here's John Howard running around on
Thursday night last saying " we'll put a cap on super we'll put a cap on it
and we'll give tax concession to higher income earners". Well, he gave tax
concessions in the 70s, and by 1983, superannuation coverage was
Today, it's 90%. So, if we go back to tax deductions, what we will see is
superannuation contributions go up to the top end of the income range, and
not the lower and middle income earners where the great bulk of the
community is where the great bulk of the savings must come. So, we take
the view that by starting with a 3% case in 1985-86, and moving it up to
and then getting the superannuation guarantee into place taking it to 9% by
2002, and now adding 6% 3% and 3% from personal contributions and
the tax cuts, we have over a decade, put together a scheme that the
Liberals wouldn't have had the imagination or the wit to even approach,
much less implement. And you think there are some things.. . they don't
have any conversation with the trade union movement, and you can
imagine Peter Costello or John Howard going to say to the workforce of
Australia " please put 15% of your income away as savings", and they would
say " oh, sure we will sure. No problem". Well, of course, they can't do it.
You would think they would have enough sense to say well look, a Labor
government did what we could never do, let's let this one go to the keeper
let's at least lock this away. That's what Mr Connolly was saying a week or
2 ago, and saying in the press yesterday their superannuation
spokesperson who was defeated in Bradfield saying this one we should
let go to the keeper because there is a broad national change here. But
again, the ideology is out saying " oh no, we don't want lower and middle
income earners getting the benefit of the tax concession, so we will cap it

and we will throw tax concessions again to higher paid earners". I mean,
some people never learn.
But, at least, there is here now a really substantial savings change. And
that's going to fund the higher investment we need for more employment,
and a more productive country. And we know, as we go through the
we are going to need more capital investment not less, more because
one of the problems of that 70s double-digit inflation, and the big call on the
public sector, is that it absolutely smashed to pieces the capital stock. And
we didn't have enough capital stock to produce goods and services, and
that's why we had a current account weakness all through the 80s. So we
have got to get the capital stock up that means more investment, that
means more savings to meet it but without those savings, that pressure
for investment will reflect itself in higher interest rates, and you know as
well as any sector, the problem those higher interest rates put on your
particular sector. So, the way to accommodate higher investment, and
higher employment, and reach the Government's target of
unemployment by the year 2000, is through more investment, but we can't
afford more investment if it only puts pressure on interest rates, therefore
we have had to augment savings. So, the Budget was a very important
document, I think, not just for the country, but particularly for the rural
sector, because it does the lay the basis of a very long-term and important
change to savings which we dearly needed and which we now have.
Let me just make one final point about outlays. In the Budget, the ratio of
outlays to GDP will decline by 2.7% over the next couple of years, which is
$ 13 billion to $ 14 billion. In other words, just left to themselves, they are
going to drop away to 24% of GDP. That's $ 13 billion $ 14 billion. But
revenue will increase by only 1 of GOP, so in terms of the structure of the
Budget, outlays are subsiding, and the revenue is only barely picking up.
So, in terms of the quality if you like, the balance between outlays and
revenue in the Budget you have got a $ 13 billion to $ 14 billion change in
the course of happening right at the moment.
Could I just go on and say that we want to be able to with this Budget and
this environment keep the environment up for the health of the rural
sector, this is not withstanding climactic hardships and the rest, and I just
want to say a couple of things about the banks. The banks have been
cutting back a lot of their operations in rural areas in the name of efficiency.
But I think they are being very short-sighted they are failing to see the
potential of Australia's rural industry, which is one of Australia's
comparative advantages, which represents one of Australia's comparative
advantages and the capacity of Australia's farmers to run profitable and
productive concerns. The banks have been cutting overheads, they don't
have the personnel necessary to provide farmers and farming communities
with the service they need. They seem to me to be almost incapable of
intensely managing typical rural loans in the region of $ 50,000 to $ 200,000
they don't seem to be able to get a handle on the management of those
loans at all, so they have taken the next best policy, and that is to basically

back out. I think they need to take a longer term view they do have a very
privileged position in the financial community, and simply just resorting to
housing lending, and moving away from what I call intelligent rural lending,
is I think, a bad trend.
One of the things your President and Rick and I have discussed on occasions
is this question about whole of farm planning which, I think, is important. It
would be far better to get the banks interested in how a farm is managed to
be able to assess the quality of the loans by being able to assess the credit
being extended to farms, if in fact, there is a whole of farm plan. I think we
should be moving more towards this where we have consultants in each
district who are able to go and look at a farm and say what its capacity is,
what the soils are like, what it should be growing, how it should be grazing,
how the. farm should be configured et cetera.
Were that to happen and if whole of farm plans were advanced ahead of, if
you like, primary advances in loans the bank's security would be better and
we would have a far better relationship, a far more conducive relationship
between banks and farms and farmers and graziers.
So, when we look at our possibilities, the Asian markets around was and the
demonstrable ethic for hard work and adaptability which the farm sector has,
then they seem to me to mark themselves out farmers and graziers as
typically the sort of people banks should be lending to rather than cutting
back. So, I am going to take whatever opportunity I can to remind the banks
of their responsibilities here, but let's make their task a little easier by helping
them, if you like develop these relationships which make farm lending easier
rather than harder.
Can I perhaps finish my remarks by just saying, we have established a great
deal of common ground in recent years. We understand that our ambitions
are very much alike. I know from working in the last two years on issues as
diverse as Native Title and Landcare and the drought and regional
development that we can get a lot done together. I think we have become, as
far as the farm and rural communities are concerned, good listeners. We try
and earnestly work our way through the problems and see what we can do in
a systemic way and we will keep that up. As I say, we are working together
now at the moment in the United States on the farm bill and I think it does
show that the view the NIFF has taken, that it is not just simply a sectoral body
which is arguing for sectional interests but taking a broader view of national
interests, have served it particularly well because, I think, while ever it is has
adopted those sorts of policies it has been more relevant, stronger, more
influential and able to get, if you like, sector specific changes into place as
well as the broader, big brush issues.
So, I see enormous potential in our relationship. As hard at times as it has
been and in many places they still are, we have made great progress and I
think the points that Donald made about the drought are right. We are seeing
these rains, but we have seen them before, we've seen the beginning of rains

for winter crops and yet the crops haven't materialised, but this time we have
an infrastructure of policy sitting behind, the problem of the drought and we
ought to be, perhaps, I suppose the term is cautiously optimistic about these
rains. They seem widespread and lets hope they are as good as they look,
but by the same token, let me endorse his remarks by saying let's not let the
pressure off on sustainability and drought management simply because we
have seen some change in seasonal conditions. We have had a major
structural problem here, cyclical problem, but becoming structural because it
is so long with the drought and now is the time to remember that we have
been making progress in drought management and these rains are a
reminder that it is a long term rather than a short term problem.
Can I thank you for having me over. Let me again, conclude my remarks by
commending Rick Farley for the role he has played. I wish him well in the
future. I know he is going to be a hard man to replace, but the organisation
has changed as a consequence of his being there and under the leadership
of people like Donald, I think, the future is yours, it is what we can make of it.
Thank you.
Q: On the theme of the drought and the fact that we have had some
useful rain in parts of the country and, indeed, some very big parts of
the country and that is very welcome. But, we do seem to have this
persistent problem in some areas and, as I said, those are some of the
areas that have been most badly affected for longest. I think, in the
pleasure that the rain we have had brings to those areas that it comes,
is always the concern by the people in other areas, in the areas that
haven't had it, that they will be forgotten and I think it would be very
much appreciated by those people, Prime Minister, if you could restate
essentially the commitment that you have given in the past that the
relief that they have got through the assistance measures that are will,
indeed, continue until such time as they actually do get back into a
position where seasonal conditions and production returns to some
sort of normality. And secondly, we have actually still got some
exceptional circumstances applications pending and we would like an
assurance that the Government will deal with those as quickly as
PM: Let me, Donald, say that I am quite happy to say that we had some
exceptional circumstance applications, I think, in Victoria amongst
other places pending and one will need to see with these rains what
the continuing assessment of these regions are. But, from our point of
view we don't regard the drought as being over simply because these
rains have come and that we would like to see these applications
progressed and we will be keeping these policies in place. We have
now got, I think from memory, about 6000 to 7000 and maybe more by
now farm families getting income support. We have seen about 4000
farm businesses received support under RAS and it is the sort of

matrix of policy we have got sitting there now which is something, I
think, that becomes a real advance for the rural community because
now they are there they won't be going away. I mean, us having put
them there, I can't imagine the future if someone is going to basically
say no, the farm assets test is going to be applied regardless of
income in these circumstances. So, I would like to think we have made
a policy advance in some of these areas, but before we cry victory and
walk off the field, let's see what happens with the rains and let's
progress these applications.
Q: Prime Minister, interest rates have a major impact on farm profitability,
some comments made yesterday by the Treasury Secretary Ted Evans
and they have been interpreted by the media to mean that interest
rates may well have peaked. On the other hand, of course, there are a
lot of financial institutions that are providing other advice concerned
about higher inflation and perhaps a rebound in spending. Do you
believe that interest rates, especially those that are driven by Reserve
Bank policy on short term money market rates that have an impact on
business overdrafts and mortgages have peaked?
PM: Let's make these two distinguishing points. -That is, the long bond
rates set in the market without any reference to the Reserve Bank and
it is the long bond rate which has fallen by over a percentage point
and, I think, the large reduction in the bond selling program is probably
responsible for a large part of that. Short end rates are conditioned by
long end perceptions to some extent, but they are also governed by
demand management objectives. One of the points I was making to
you on my feet is that we have succeeded in slowing the economy
down so that now we are forecasting for the coming year three and
three quarters per cent rather than five or six per cent. Therefore, the
policy need of using further monetary adjustments to slow the economy
down seems remote. It would only come back into prospect if, in fact,
growth unexpectedly picked up to unsustainable levels again, but I
can't see it in the current environment.
Plus the change in the Budget balance is fairly substantial and that is
going to reduce quite a bit of public sector demand from the economy.
So, even if for instance, we were only conservatively estimating the
decline in GDP coming from private activity there is one thing certain
about the Budget, there is a further large complement in the reduction
of public demand. Put all that together and Ted Evans' view that the
underlying inflation rate may be a little on the up side in the Budget
estimates and that augurs quite well, I think, for the short run of rates
because, again, you have got always a demand in supply equation
there to be met and by such a very large change in the public sector
call on savings we are going to see a substantial change in that
demand supply equation and that should be good for rates. So, I think,
one of the objectives of the Budget was to take pressure of interest
rates and I think it has done that.

Q: Prime Minister, up until now the. Industrial Relations Accord parties
have been exclusively the Government and the ACTU, given the
importance of progressing further industrial reform for competitive
reasons, what is in your view on the extension of the focus of the
Accord to include parties such as farmers, business, large and small
generally, in interests of progressing further constructive reform?
PM: If you go back over the history of the Accord, it started in 1983 from a
wage share in GDP that was inordinately high and the profit share in
GDP was well below the levels we had experienced in the 1960s and
as a consequence, investment had been sharply curtailed. So, in a
sense it was the ACTU constituency that had to give something away.
They were the people giving it away, the business community were the
people getting it from wages to profits. So, that is why of its essence,
in its original days the Accord was a matter between the trade unions
and the Government because the Government was seeking to redress
that shift in the profit share which had so dislocated investment. Now,
that was true for most of the 1980s. It is less true now because the
profit share is as high as it was in the late 1980s and, I think, now has
no historical precedent. This is the highest levels of profits, national
income to profits, I think, probably ever.
We are seeing a lot of, if you like, informal involvement of the business
organisations. You can see it in the change to enterprise bargaining.
You can see it in the support of the change. You might recall a couple
of years ago the MTIA were most sceptical about a movement to an
enterprise bargaining system because Bert Evans had a long memory
of what had happened with leap frogging in the late 1970s and early
1980s under the concept of comparative wage justice and so was, if
you like, less than confident that business could actually handle the
strengths which the Industrial Relations Act was going to give it. At
any rate, what we are seeing is a very great spread of enterprise
bargains, 65 per cent of all employees covered by federal awards are
now covered by a bargain of some kind or another and we are seeing
some very good bargains being struck and just a week or so ago the
metals' unions and the industry, I can't remember the place, made
what the Metal Trades Industry Association thought was a fairly good
agreement and as we see these, what you call, very good grass roots
agreements continuing to arise, they become industry standards. The
industry starts to get its pecker up and get its confidence, but people
are starting to really pull a lot of productivity out of the changes and
employees also are benefiting.
So, there is, I think, now a fairly conducive, informal involvement by
some of the industry bodies. The hotel sector, for instance, did a land
mark enterprise agreement with federal hotels and, I think, that
therefore the game has opened up. In terms of the Accord proper, of
course, because we have moved away from the centralised wage fixing

system, there is less specificity if you like in the elements of the
Accord, rather broad commitments by the trade unions about
maintaining competition with our trading partners on inflation and
commitments by the Government about support for the safety net
arrangements for those people who can't access enterprise bargaining.
So, the Accord elements are becoming more simple. They are
because the system of wage fixation is less centralised and now more
complex. Now, I think, that it is possible for organisations like the NIFF
and the MTIA and the other business organisations, the Business
Council if they can drop their ideology, to actually be involved and be
relevant in this process as we see the continuing evolutionary change
to the labour market. I think this would be a very good thing, but in any
Accord process, with the government and the unions, there is a
commitment by the trade unions to low inflation, to competitiveness. A
commitment by the government to equity in wage adjustments. If a
business party joins it, there has got to be commitments too, it can't be
in a sense, there is no point in being in it with nothing to contribute and
that is why when we have mooted these things in the past, they have
never come to much because the business community has never
believed it was a principal party to the point where it was actually
giving something away or providing something. That has changed in a
more co-operative environment and maybe the time is arising where
that can be considered. I think we are about to move to another
Accord Mark VIII which will cover the next three years, but I think we
are seeing now, you can see for instance the ACTU's attitude towards
the NIFF or some of the other business organisations, how much the
game has changed, how less confrontational it is, how more
constructive it is and, I think, they would welcome expressions such as
the one you have made.
Q: Prime Minister, when APEC was formed trade was well and truly one of
its prime objectives, Is the reform of agricultural trade still on the
agenda and if it isn't, do you propose to make moves to bring it back
on the agenda because it is extremely important for agriculture in
PM: The answer to that is very much in the affirmative and the value of
APEC is that, well you know this expression the north-south dialogue
we used to hear through the 1970s and 1980s, APEC is the first
tangible real expression of that dialogue. When you have got a body
in the pacific rim which are represented by countries such as the
United States and Japan, the first and second largest developed
economies. And then the largest, if you like, developing countries
China, Indonesia, smaller countries like Papua New Guinea so it
really is, in a sense, representing that north-south divide and, of
course, one of the things we argued all the way through the GATT was
that although Australia was a developed country it had a lot of the
trading profile of a developing country because of agriculture and

therefore we put the Cairns Group together and successfully kept it
together for seven years to prosecute that argument. So, I think, there
is a lot of trust in Australia's position as an agricultural producer and
somebody who champions the cause of free markets or open markets
and freer trade in agriculture. That is going to matter in the Asia
Pacific where some of the agricultural nationals will want better access
and it is going to improve the living standards of developed countries
like Japan to actually improve access for agricultural products from
abroad. So, given the fact that the GATT took so long because we are facing
the subsidy problems of the European and the European Common
Market, APEC representing half the worlds production and about half
the worlds population, gives us a chance to do a far more precise and
refined approach to agriculture than we were even able to do with the
Common Agricultural Policy and the GATT. But, we are going to see
changes too and I think the other thing about APEC is that it will bring
on, over time, at least it will encourage a debate about another general
trade round because if half of the world is liberalising its trade, the
other half of the world has got to be thinking about it.
The other thing is, as these Visigrad countries join the European
community, where they have large scale common agriculture, once
those areas have been farmed with modem agricultural machinery and
the agriscience and the understanding of productivity becomes more
entrenched in those countries, the weight of product that is going to be
dumped onto the European financial system is going to be so great, I
think, in the end it will actually dislocate the Common Agricultural
Policy. I think that has been all right to the moment where we have
essentially small, in many countries for instance in France, quite small
farm agriculture, but once you get those broad acres of the Visigrad
countries coming to higher production, I think, the game is going to get
very nasty indeed for European budgets and they may be looking then
for an opportunity to start to see their problems being resolved in a
broader context and that is where I think APEC can be just the ticket.

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