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PRIME MINISTER
TRANSCRIPT OF THE PRIME MINISTER, THE HON P J KEATING MP
INTERVIEW WITH JOHN LAWS, RADIO 2UJE, 13 DECEMBER 1995
E& OE PROOF COPY
JL: Prime Minister, good morning.
PM: How are you John?
JL: I am pretty good. What about you?
PM: I am as fit as a fiddle.
JL: Good on you. Before I turn you over to the listeners for a couple of questions, let's take a
couple from my end to begin with. The last time you were here at the end of July, it was just
after Wayne Goss had just crept over the line to win the Queensland election. The result of
that regarded as the fault of the unpopularity of you and the Government in mid July. Is that
why Wayne Goss refers to you as, I quote the Queensland Premier directly, " a Southern
politician"?
PM: Well that depends where you live, I think, in Queensland. I mean from Far North Queensland
down they think everyone is a Southern politician.
JL: Do you see it as being an insult?
PM: Oh, no, I don't think so. It is just one of those things. Look I think Wayne is going to do real
well there. He has taken the job on with great gusto. I mean I think the election campaign..
obviously it didn't turn out for him, the last election, as he expected. But he is the Premier, he
has got on with the job, he is doing a good job and I think Queensland has really got the wind
behind its sails. Whenever you go there, in any part of it, you always feel it has got the
growth, it has got the population growth, it has got a temperate climate, it has got the tourism,
it has got the linkages to Asia, it is really off and running. And the best thing, I think, that can
happen to Queensland is that the Government gets on with the job.
JL: Yes, it has got that terrfic new train that you drove the other day, too?
PM: Well that is right. You see that is the fastest growing growth corrdor in Australia from
Brisbane to the Gold Coast, which reflects again the movement of people into Queensland
and, of course, it was only cars, cars and roads. And under the Better Cities program of the
Commonwealth, we have made a very big contribution to building a new railway from Robina,
the Gold Coast, connecting up to Brisbane which is going to change the lives of hundreds of
thousands of people when it gets going. It is a few weeks from being opened I think.
JL: The latest national accounts confirmed a record of 17 quarters of economic growth in
Australia. In light of that, are you sorry you didn't take the December option for the election?
PM: Oh no, I have been saying all year, John you will have noticed that I think the public expect
us to get full I mean they are only three year Parliaments, they are not five years as in
Britain, or four years as in the United States. They are three years here and cutting them
short you are into a couple of years. And I think the public are cynical about that sort of stuff
Governments sort of trying to grab a time of their choosing and we have kept on with the job.
Look, just in the last week, we have released the Innovation Statement and a big statement
on a change to public housing. In other words, we are using the time and keeping the policy.
And, as you quite correctly say, I was very happy about the fact it is 17 quarters of
consecutive growth 4 1/ 14 years of growth. That is the longest period of growth since 1945.
JL: Okay, let's take a caller. Hello.
C: Hello.
JL: Okay, go ahead talk to the Prime Minister.
C: Yes, good morning Prime Minister. Thank you for speaking to me.
PM: Pleasure.
C: Prime Minister, what commitment are you going to give to small business. Small business is
the largest employer of people in Australia and small business, at this point in time, is
struggling like mad. What can your Government do for us?
PM: Well the biggest thing we can do for you is to give you a growth economy. As you know, the
economy has been growing at between 6 per cent and 4 per cent over the last few years. We
are running, at the moment, at about 3 1/ 2 per cent to 3.7 per cent. And we are seeing a lot
of employment growth. We have had, now, 730,000 jobs since the election. Now all that
increases purchasing power. It increases the buoyancy in the economy and I think the other
point worth noting, is that despite the fact it is the longest period of growth since the war.
Even in our fifth year of growth 4 1/ 4 years behind us, in our fifth year now the broadest
measure of inflation we saw in last week's national accounts came out at just under 3 per
cent, 2.8 per cent. So this, for Australia, is a mighty record. A long period of growth, low
inflation, strong job growth. They are the biggest things that I think the small business
community need.
JL; Now, Prime Minister, can we just go back to the caller because you might have some
specifics in mind as to what you feel the Prime Minister should be doing for small business.
Have you got any specifics in mind?
C: Yes, well small business, at this point in time, is struggling like mad. We have had no flow on
from all the fancy statistics the Prime Minister is giving us. You know we hear statistics, but
small business is still struggling. What can the Government do to help small business?
I appreciate all the statistics, but they are not helping us directly.
PM: Well they are not just statistics. It is actually growth.
C: Well why aren't they helping us then?
PM: Well it is obviously helping some people more than others. But I mean imagine how you
would be unhelped if we had, you know, a recession, or low growth, or we hadn't had that
strong employment growth. I mean it is that strong employment growth that keeps retailing
strong. I mean you look at the retailing numbers over the last few years, that is a measure of
the sort of purchasing power in the economy, or purchasing trends. This affects the small
business community. The other thing in that statement the other day the Innovation
Statement that we did specifically for small business is for those who are in need of capital,
we have now given the banks the right to invest equity rather than debt in the companies. A
lot of smaller businesses don't have enough retained earnings to grow. So what we have
done, in a sea change to banking policy in Australia, we are now saying to the major banks,
you can invest In equity if you like. So let's say a business has got some real potential. But
the owner just can't find the next $ 300,000, or the next $ 1/ 2 million, or even the next
$ 1 million. The banks can invest in that company and then sell their equity later on down the
track when the business is up and running and going strongly.
JL: Can I ask the caller? What do you believe is the problem with your small business? If you
have got a problem with your small business, why have you got a problem?
C: Well we believe people just aren't spending. People are holding back on spending in the
retail areas and we just can't understand why. In days that have gone by 3, 4 and 5 years
ago people would come in buy. Today they are not buying.
PM: What business are you in?
C: This Christmas is probably one of the weakest Christmas's we have ever had.
JL: What sort of business have you got?
C: We are in jewellery.
JL: I see.
PM: Yes. Well, can I just say, it depends also where you are because one of the trends in
Australia has been towards, you know, more shopping centres, large retail shopping centres.
And, if you are in one of those, you tend to pick up the passing trade and traffic. If you are in,
what you may call, a suburban retail situation, you could find if there is another large outlet
nearby that that starts to affect business. And, of course, one of the things which I think
Bishop Rainer said in Victoria about Victoria, in particular, where we have seen gambling now
starting to knock around retail incomes.
JL: Where are you calling from?
C: From Sydney.
JL: Okay. Prime Minister, are you suggesting the same thing may be happening in New South
Wales?
PM: Oh, I think, in New South Wales people up there have been used to it. They have been
pulling the pokies for that many years that they have adjusted to them I think. But the only
other thing I can see to our caller is that it is basically income growth. We have had real
growth in wages this year, you have still got low inflation, you have got the economy growing
quite strongly and you can see we had 112,000 job growth in the month a phenomenal
figure just a week ago.
JL: So are you really saying to the caller that there is not much more that can be done?
PM: Well I don't think from the Government's point of view, in that respect, no.
JL: Do you accept that caller?
C: No, I don't. I would like maybe if the Prime Minister could give a guarantee, or an assurance,
that small business can liaise with him directly?
PM: Well they do that. Well we meet the small business..
C: We could speak to you and directly give you our grievances and I am sure between the small
businesses and the Prime Minister's Department, or the Government, we could try and
improve things because they are really not good at this point in time.
JL: Okay, well..
C: We are in a major regional shopping centre and business is not good.
JL Okay, well the Prime Minister has made the point and I will have to say goodbye to you.
PM: Can I just say, we have a Minister for Small Business and he has regular meetings with the
peak small business councils and, you know, not every small business in Australia is going to
be feeling as though they are doing well. But, again, I can only repeat the point we have
never had a longer period of growth, since the war, than this one and we are having it with
low inflation and strong job growth.
JL: Let me just look at a couple of faxes and notes that have come to us on the Intemnet. This
one is in reference to foreign investment and tariffs. " Prime Minister, we know it is to make
us more competitive with the teeming millions in Asia. But short of reducing our pay to $ 1
dollar an hour, how are we supposed to keep a small business going with all the utopian
requirements for workers your Govemnment demands if tariffs are phased out?"
PM: Well wages is not the problem in Australia. This is still a relatively low labour cost country
and that is why you find all these major businesses around the world, locating their
headquarters in Australia. They have a choice of picking which of the Asian economies they
wish to come to and many have chosen Australia and I don't think wages are a problem here.
I mean this is the point I keep making to Mr Howard. He sees us as a sort of low wage cost
country, that is in there competing on, basically, unskilled jobs and low grade jobs in
manufacturing. The model I see is one of a higher wage country with product innovation,
intellectual content, selling elaborately transformed goods and that is why we changed the
education system from three young people in ten completing secondary school ten years ago,
to nearly eight in ten now. A huge boost to universities etc.
JL: Okay, well we will come to that in a moment or two. Just let me go back to this note that I got
back. I am quoting from Mrs Joy Hutton: " Before the Labor Party decided that tariffs were
set up to protect rich squatters, cow cockies and beastly businessmen, we had full
employment, a basic wage, private health insurance and a good public health system, equal
employee/ employer superannuation contributions, full vaccinations and health screening and
a thriving small business sector, manufacturing everything we needed. It was admitted after
1972 that dropping the tariffs would throw thousands out of work, so expensive retraining
schemes and how to enjoy more leisure courses were introduced. What was the advantage
of rushing in and destroying all those great little businesses?"
PM: Well that is nearly all wrong. That is nearly all wrong. The whole analysis there is wrong. I
mean manufacturing production was falling. By 1983, manufacturing was in such a state that
there had been a one third reduction in manufacturing jobs in about five years. The economy
was growing at less than 2 per cent now it is growing on average around 3 1/ 2 per cent to 4
per cent.
JL: She is talking about early 1970s, when the tariffs were dropped, when Gough Whitlamn..
PM: No, well they weren't dropped. I mean what happened was tariffs rose again in the 70s under
Malcolm Fraser and John Howard. This Govemnment started taking tariffs down in 1987/ 88
and will be down to an average level of 5 per cent by 1996/ 97. In the period since the
Govemnment reduced tariffs, exports have gone from 13 per cent of all we produced to 22 per
cent. That is worth $ 45 billion extra a year in exports. Just imagine where we would be, now,
without it and manufacturing production has doubled and the fastest growing component of
our exports is elaborately transformed goods. Look at cars. Did you know a car now, had we
kept the tariffs that your writer suggests, the average car would now be $ 10,000 or $ 12,000
dearer. And the quality in the last ten years has improved profoundly. I mean you pick up,
now, a Commodore, or a Ford, or a Toyota. You look at the quality of the cars compared to a
decade ago and look at the price. Why should Australians, Australian families, pay an
enormnous price for cars of low quality when they can now get them at much cheaper prices
and higher quality and the same goes for shirts, for shoes, for clothing, for all those things.
That is why our standard of living has come up because we are not putting this huge penalty
on people with tariffs. And the rest of the world Is bringing their tariffs down too. That is what
APEC is about, John. You see Indonesia announced a big package a couple of weeks ago,
China the same.
JL: Can we just have a look at Joy Hutton, very quickly, and Mrs Hutton we will have to finish
with you after this. But just look at what she says here. " We had full employment." Did we
have full employment?
PM: No, not then we didn't. We haven't had full employment since the 1960s and we had that
because, basically, the world was paying us a fortune for primary exports, agriculture and
minerals. That all changed. The game went very sour by the late 70s, early 1980s. When
you and I did that Interview where I talked about the Banana Republic, John, our terms of
trade were at the lowest since the Depression in the 1930s. That is the prices we were paid
for those things. I mean the happy days finished about the time Bob Menzies retired and
from 1965 to 1983, the place turned into sort of industrial archaeology. It was, basically, an
industrial rust bucket. It is not now, fortunately.
JL: Okay, well Joy Hutton, I know that you would have liked to have heard a lot more in answer.
It is very difficult for the Prime Minister to cover it all. It is very for us too and I am sure you
understand, Joy, and thank you for taking the time to send us the fax. Here is one that comes
from I can't tell you where some kitchen specialist fellow. This is to you, Prime Minister.
" Would not be dead for quids. The country may have its problems, but to you and the Prime
Minister I am the luckiest man in the world. I have a lovely wife and two healthy boys. I have
a successful business, a one man show and a couple of cars, a good roof over my head, that
is keeping the dream alive. Best regards and merry Christmas to you and the Prime Minister.
Ric in the Riverina.
PM: Good on you Ric. Yesterday I was in Bendigo and I met a number of people in business and,
in fact, I gave an export award to a business which has developed a vaccine business selling
into Australia, that is veterinary vaccines for animals for the farm sector, selling into Australia
and to Asia. You know, growing strongly, about to double the size of the business, about to
build a second factory. I get those sorts of stories all over the place.
JL: Ok, while we are on that subject, John Howard today is on the headland again. Not the
soapbox, but the headland..
PM: on the headland..
JL Yes, he is expected to talk about the virtues of Australians and the virtues of Australia. Do
you detect any anti foreign investment message coming out of this headland speech?
PM: Well, yesterday he said I am as representative of the Australian mainstream, my values,
my hopes, my aspirations are those of the mainstream Australian community I mean, who
is he trying to fool? He was telling us a couple of years ago, he is the most conservative
leader the Coalition party's have ever had.
JL: People do change.
PM: Oh yes, but he has decided to become a social democrat. I don't know what he'll become
next. A Fabian socialist, maybe a concert pianist. Anyway on foreign investment he has
been saying for years things like this the time has come for Australia to abandon totally all
investment restrictions and abolish the Foreign Investment Review Board Put simply, we
now need all the equity and the investment we can get. On another occasion he said we
really can't have it both ways. If we don't bring capital into Australia, not having enough
ourselves as a nation, we need to put up with a much lower otherwise standard of living
JL: And do you detect an about face coming on that?
PM: I think he is making this case that, particularly in the media, we should be letting Australian's
own it and not foreigners. This is all code, I think, basically for letting Kerry Packer own the
Sydney Momning Herald and The Age as well as the Nine Network in NSW and in Victoria.
JL: Your policy is to try to promote diversity in ownership.
PM: And it has. The cross media rule has kept there is a new set of owners in radio,
independent from the newspapers. A diverse set of owners in the newspapers and a separate
set of owners in television. In the old days, for instance, John Fairfax and Sons owned the
Sydney Morning Herald, The Age, the Australian Financial Review, it owned Channel Seven
in Sydney and in Brisbane, it owned the Macquarie radio network.
JL: True.
PM: Now, of course, the Macquarie network is owned by different radio groups. Channel Seven is
owned In part and controlled by Mr Kerry Stokes, a completely new and different owner.
JL: Yes, but did it matter when the Fairfax family owned all those things, I mean was Australia
damaged by that ownership?
PM: Well, it meant that you got the view from Jones Street, Broadway transmitted right through
the whole media chain and what was happening was we were getting more concentration. As
they were to drop out, basically their assets would have then fallen to Mr Murdoch and Mr
Packer only. Can I just say this, John Howard said, this which was interesting John, on
foreign ownership of the media he said no I don't have any hang-ups about foreign
ownership. It seems that the people who oppose foreign ownership vigorously and zealously
and almost religiously in the media are, in fact, doing more than anyone else to increase the
level of concentration in ownership because it is the powerful overseas players that have got
the capacity to provide the alternative to News Limited.'
That is in 1991. In 1995 he has gone over again 180 degrees and now he says he is in favour
of Australian ownership in the media and that is only code for one thing, that is, how he can
wriggle out of the claim I put upon him that basically he wants to provide Mr Packer and his
organisation with control of a major television network and the principle newspapers in the
country.
JL: You can understand the point he is making and just back to what you said about the Fairfax
organisation. I worked for the Farifax organisation at the time that they had Channel Seven,
the Herald, the Age, the Financial Review, the lot and the Macquarie broadcasting network
and there was never any editorial interference there I have to say.
PM: Oh, they don't muck about with you mate. They think you might leave and when you leave
the station profits leave with you. So, they gave you a wide berth, but for others though there
was always a line. Look, it is just this thing about John Howard, he is out there saying ' I am in
the mainstream' where he was making a virtue a few years ago saying he is the most
conservative leader the Coalition has ever had. He has now done a back flip on ownership, I
mean, it is all this sort of view and can I just say he is trying to say to people that he will give
them a republic, I hope he doesn't say anything about it because the fact is he doesn't want
one and he has a plan to deny Australians a republic and he has got years of passionate
support for the monarchy behind him.
JL: We had better go to a caller, otherwise we will spend the entire time talking about John
Howard.
C: I'd like to speak to the Prime Minister.
PM: I'm all ears.
C: Good morning, sir.
PM: How are you going?
C: Good. I've been listening to you of late talking about what you are going to do about welfare
housing and giving them some sort of percentage break, what I want to know is what are you
going to do for somebody like my wife and myself who are paying the variable rate of 10.5
per cent and battling?
PM: Let me just tell you what we have done for a start. In the late 1980s, I was the Treasurer and
I deregulated housing lending. Something my predecessor didn't do. What used to happen
in his day is you could get a housing loan for 13.5 per cent, but only to about $ 27,000. They
then gave you a second mortgage which would be at 2 or 3 percentage points above that. So
you would have another $ 20,000 at say 15 per cent. And then you get a personal loan at 18
per cent for the last $ 10,000 or $ 15,000 because banks had to ration money for housing
because they couldn't borrow on the market to lend it. They couldn't bid for it in an open
system. Now they can bid for the deposits in an open system and they can actually lend them
as consolidated mortgages. So, you have a consolidated mortgage or you have the capacity
to get a consolidated mortgage and the rate is around 10.5 per cent. The repayments on that
mortgage would save you thousands a year compared to what would have been the case
before housing was deregulated and you could have one consolidated mortgage.
The other thing is by introducing competition in the banking sector we have got now real
competition in the supply of housing funds. Specialist housing lenders coming out and in that
environment you can see both fixed rate and variable rate mortgages coming down in price
as banks have to respond to one another to now some of the super funds, to now some of the
specialist housing lenders such as the schemes, say, the Macquarie Bank and others are
running against the main four and as a result we are seeing people switching mortgage
lenders and having a much better menu of people to borrow from at much cheaper rates.
JL: Ok, could we ask the caller because I think it is important that we understand, what do you
expect. Can you tell me what your expectations are?
C: Well, John, this is what the people that I talk to in the circles that I move in and they have
basically got the same rate as what I have got. They are just sick of the Prime Minister telling
everybody about what is going on in the welfare system and not helping us because we are
battling too and we are paying the tax.
PM: What is your basic income?
C: I am earning about $ 40,000 a year and I have got the average $ 1 00.000 mortgage.
PM: Yes, ok, but understand the point that there would have been a time in the 1980s where you
wouldn't have got a $ 100,000 mortgage. I mean, you wouldn't have had the house. Can I get
you to understand this point, there would not have been a mortgage for you.
C: Houses were cheaper then.
PM: Cheaper or not..
JL: Wages were down too.
PM: Houses were cheaper, but the difficulty was that you couldn't get a mortgage. If you didn't get
some money from relatives or someone else to bridge some of the gaps you just couldn't get
the mortgages because the banking system couldn't give them to you. And they couldn't give
you a mortgage certainly to that sort of level at these sorts of prices. Can I just say about
housing the other day, what we did in housing is for people further down the income scale..
JL: But, he is worried about him and he is kind of in the middle. He is middle Australia and there
are a lot of people expressing concern for that area.
PM: Indeed, but again, what keeps that mortgage at around that 10 per cent level or for some
people as low as 8.5 per cent, between 8.5 and 10 per cent and the answer is low inflation.
And what keeps that low inflation rate in place? The government's policies and the accord
with the unions. If we didn't have sensible wage outcomes, if we had a tear-away industrial
relations system, you wouldn't be looking now at the broadest measure of inflation turning up
2.8 per cent. It would be back to 5, 6, 7, 8 again and for every percentage point you can just
add that on to your interest rate.
JL: Can I say this to you, I understand the point you are making and I think that people would
understand the point you were making too, but it is very difficult for somebody like the fellow
we are talking to now, earning his $ 40,000 with his $ 100,000 mortgage and he believes he
has a problem. It is very hard to make them feel good about the problem that they have now
by saying it could have been a whole lot worse. It is true, it could have been 10 years ago
more he might not have been even able to buy a house, but it doesn't help much now does
it?
PM: But, what am I to say to you John? That the person who has lent the money, the retired
person, the saver, the person who has put their money in the bank or in a fixed deposit or
some fixed instrument from which the banks have borrowed to lend to your caller, are they to
get such a derisory rate of interest that they don't receive earnings on their deposits?
Because, you see, anything in housing which is in the ranges we are in now is built on a
relatively low inflation rate, low inflation and what is called the real rate of interest.
C: Could I offer something else please?
PM: Sure.
C: I am paying the 10.5 per cent. Would it be possible for you to give it a tax break after 8 per
cent?
PM: No, because what happens then is that the country starts then subsidising investment in
housing and where ever you see a tax subsidy, you will start to see a flow of investment away
from the things that are going to provide the jobs and the income and the security. And that
is basically the plant and the equipment and the capital stock of the country. So, once we
start saying that we are going to start subsiding house mortgages, you can forget the budget
surplus. You can forget growth and investment in manufacturing. Soon you'll start to see
employment levels coming down and it wouldn't be your mortgages you'd start worrying about
then. You would start worrying about your job.
C: But, you are subsidising other people in this country in relation to housing in your policy you
have just announced.
PM: Well, we are subsidising people who are on incomes of $ 18,000 or $ 21,000 or $ 22,000 with
two or three kids. Yes we are and the reason we are doing that is we believe that those
children in those families have a right to a roof over their head. It may not be a private house
as you have it, it may be a house in a housing commission area or it may be a rental. What
we are saying in our housing reforms the other day, is that the Commonwealth will take over
income support or rental support in the private sector and the public sector. At the moment in
the public sector, in public housing, this is done by the States.
JL: Prime Minister, we will have to move on and to my caller I hope you understand we have
given you as much time as we can.
C: Thanks very much, John.
PM: I was glad to speak to him, but can I just say John again, you have got essentially rates of
interest now in housing which are built on that low inflation rate and every percentage point In
that underlying inflation rate is another percentage For instance, let me cut a long story
short. If the inflation rate wasn't three but say six per cent his interest rate wouldn't be 10 per
cent it would 13 per cent.
JL: I think he understands that and I thank you very much for the call. I'm sure that they
understand, but it is very difficult and I understand the difficulty from your point of view to
make people feel better by saying ' Well, you might be doing it tough and he feels he is doing it
tough, but it could be a whole lot worse' And when you say that it is true 10 or 15 years ago,
but it is very hard to cast your mind back and say ' well, thank God I didn't live then.'
PM: I know, but again what do you say to the person who has got a nest egg in savings in
retirement or is just a reasonable saver, who put their money away, to make those housing
rates cheaper essentially the savers have got to subsidise the borrowers. Again, you won't
get that sort of I mean, borrowers these days will demand the real rate of interest. That Is,
a rate of interest above the inflation rate, so if you are talking about say a three per cent
inflation rate and they are talking about four to five per cent real you are talking about seven
to eight per cent and then the banks add their one per cent on and there you have it.
JL: I understand clearly what you are saying, but I also understand it is difficult, particularly
middle Australia feels that they are being a bit neglected, small business feels it is being a bit
neglected too. Let me just read this fax from Helensvale in Old. Mr Keating, I am sure many
people other than myself would be interested to hear why you refused to fly the Australian
flag on the car provided to you by the people of Australia.
PM: I just think getting around in a Commodore with a flag on the front is a bit comical, frankly.
Saying, " here I am, aren't I important. Please notice me." I am just not into that sort of thing.
I am quite happy to join the milling throng of traffic out there without going along like some
potentate with a flag on the front fluttering. If it was on a big limo in New York with the US
President in it you could understand it I suppose, but running around Sydney and Melbourne,
as I do, and Canberra, in a Commodore with a flag fluttering on the front. I mean, I just think
that it just gets a little bit comical to be saying " here I am".
JL: Yeah. Now, Leonora Fenwick of Helensvale from Queensland who sent me the fax I have
to say to you Leonora, that some time ago I asked the Prime Minister the same question in
the street. I saw him in the street, and I said to him I didn't know it was you have you got a
flag on the car? And he gave me exactly the same answer he said, " give us a bekdriving
around here with a flag on the front. Bad enough having people look at you anyway"
So, he gave me the same answer, so he's not pulling your leg. But I'll go to the second
paragraph of your fax also, why without being asked have the Australian people funded a
Republican information kit, printed in 17 underlined languages. Will a similar kit be funded
for the case for the Constitutional Monarchy?
PM: Well, I mean, we have got a Civics Education Program running out there to tell young people
in particular about the shape of the Constitution, the way our public institutions work, to give
them a background in the history of it which is I think a very neutral thing. We proposed it
with the States, and the States are taking it up. And that, I hope, is going to improve the
understanding of the whole institutional structure of Australia by young people getting that at
school. What I did recently was to simply release the speech I made in Parliament, putting
the framework, and to flesh out some of the arguments and the details of that proposal.
JL: Yeah, I also think it should be said to Leonora Fenwick you say here " and why, without being
asked, have the Australian people funded a Republican Information Kit?" I don't think we
elect Government's to have them ask us what they should do at every turn I think that some
faith has to be placed in the Government, and I don't think that any Government would ask
the general public every time it wanted to put it's hand in it's pocket, even though it might
frustrate the general public. We better move on we'll take another call, Prime Minister.
Hello?
C: Hello?
JL: Okay the Prime Minister is here.
C: Yeah. It's Wayne McTeer, I have just got a question to do with... . well, particularly in regard to
the Prime Ministers emphasis on savings, which of course is a terrific thing.
JL: Can you keep your voice up a little bit for us?
C: About the last time that there was a change made to the compulsory superannuation system,
there was also a change made to the company tax rate, where he moved... . he originally had it
at 39%, moved it down to 33% then at that point, he moved it back up to 36% from 33%. And
at the same time, of course, he bought the payments forward. Now, the effect of moving it
from 33% to 36% was to increase the tax by 3% which reduces the amount of funds
available within a company by 3% out of what was 66% in other words, 1 in 11, or So
that little move, reduced the money, or the funds that were available, for investment in a
business there's nothing else you can spend it on, because as soon as you spend it on
something personal, you get taxed at the personal rate, or as soon as you spend it on a car or
something like that, you pay FBT. So, it can only be spent it on legitimate investment things,
so that shift reduced the amount of funds available in all the businesses in the country for
investment in capital equipment which he just said is very, very important, and of course we
all agree with that by Now, what was the logic of that? What is the logic of reducing
the amount of savings, reducing the amount of funds available for investment to businesses?
PM: Well, the answer was that we provided you might remember in the One Nation statement
some 2 or 3 huge concessions to business. One was accelerated depreciation of plant and
equipment, where you could write off an asset over 40 years, you can now write it off over
years. When you could write off an asset over 20 years, you can now write it off over 7. And
where you could write it if over 5 years, you can write it off over 3. This produced a cost to
the Budget of around $ 1500 million to $ 2000 million, and as well as that, we introduced 2
investment allowances so you can write off 120% of certain investments, instead of writing off
100% of their capital costs. That came at about another $ 1 billion. So, in other words, the
Government had given concessions of around $ 3 billion and we had to get the Budget back
into surplus for public savings, which we need for the Current Account and other things, and
you have got to say " well, where should the weight fall? Should it fall on personal tax-payers,
or should it fall to some extent modestly on companies that have been given so much?".
You see, could I also just remind you when the Government came to office, the corporate
rate wasn't 36% it was 46%. And not only that, you paid personal tax on the dividends,
where now you have got the relief of personal taxation on the dividends with a dividend
imputation system. So that now you pay 36%, and you can keep 64 cents in every dollar in
the company. In the 1980s, before I became Minister, you could keep only 22%.
JL: Okay what were you going to say?
C: You partly got elected on dropping the rate from 39% to 33%. And then you said well, that's
going to be off-set by bringing the tax payments forward the company tax payments forward.
Now, almost to the day of when the company tax payments started to go forward, you then
put it back up to 36%.
PM: But who should carry the burden of the change? Should it be the public working people
with an increase in the personal tax rates? Or should it be companies who have been given
so much?
C: It just depends if you want to create jobs, if you want money to I1m ean, the bottom line of
it is, do you want companies and small companies who have got the capacity to create a lot
of jobs to invest in capital equipment? Because that's... . as you know from your own piggery,
there is nothing else you can do with company money like that, bar invest it?
PM: All right. But let me just take this point to you. Not that many years ago, you could keep only
22 cents out of every dollar of company income before this Government introduced it's
reforms. Now you can keep 64 cents you can keep three times as much. You pay your 36
cents, and you can keep 64 cents in the company. You are not forced to distribute. In the old
days, there was a thing called undistributed profit tax you were supposed to distribute. So, it
went to you, and then you paid 60% personal rates at the margin. It's a huge revolution.
Dividend imputation is now costing about $ 3.5 billion a year.
C: We're talking about the last two years.
PM: Yeah, but you can't just talk about the last two years. I have got to run an economy and a
system, and the Budget we had to move the Budget balance from deficit back into surplus,
and that's for the Current Account and investment. In other words, if we don't have a stronger
level of public savings, there won't be the pool of national savings to draw the investments
that you are correctly speaking about.
C: Well, why did you why did you drop it from 39% back to 33%? Before the election it was
back to...
PM: No. We dropped that in, I think, 1989, or 88 from 39% back to 33%. Or it might have been
1993. That is, to try and kick you might recall, in the last election in 1993 we were still
coming out of a recession. So what we did, is we reduced the company rate from 39% to
33%. We gave an investment allowance of 10%, and a second investment allowance of
the ones I mentioned earlier. So in other words, all of that was to promote a big pick up in
investment and it did. And that's why the investment is so strong, and why employment is
so strong. But again, in the end, the Budget had to go back into balance and back into
surplus. In other words, you help when things are slow, by reducing these rates, and putting
these concessions in, and when things pick up again, the sector the business sector was
able to afford a modest increase in the corporate rate.
C: So, the company tax rate is just another economic lever that you can pull and pull every year
or two.
PM: No. It's
C: I mean, it's been pulled twice since 1992 or 93, whenever the last election was.
JL: 93.
PM: Let me just make the point again
C: How can you plan a thing under that basis, and how do you expect people I mean, even
now, you could have made investments and planned future investments in 93, just after that
election, based on a certain rate. And then around about a year or two years later, the
company tax rate is reduced again, and you have reduced the funds available by 9%.
PM: Look, are you trying to argue to me the difference between 33% and 36% in the company rate
is...
C: It was 39%
PM: Let me just get a word in here....
C: It's
PM: I know I can do my mathematics I'm not silly...
C: I realise that.
PM: Are you trying to argue that the difference between 33% and 36% 3% in the company rates
is going to make all the difference in whether you invest or not? Because if you think if you
are arguing that, let me assure you that's not what has happened with investment numbers.
The reason we have got strong investment numbers there since that change, is because the
whole of the economy is doing so well, and partly, that's because the Budget has moved back
into surplus, it's because the pressure is taken off interest rates by reducing the bond-selling
program. Do you know, this year as a result of the Budget last year, we sold $ 20-odd billion
worth of bonds to fund it, this year we are down I think, from memory to about $ 6 billion?
There's a $ 15 billion a $ 15,000 million reduction in the sale of the Commonwealth Bonds
selling program. Do you know the pressure that takes off interest rates? And taking that
pressure off interest rates has helped your business make investments, and given it a future,
and if you had to look at that environment versus three percentage points on the corporate
rate, I mean, there's just no comparison.
JL: Okay. We'll have to move on I appreciate your call, and thank you for it. I hope you have a
happy Christmas, and a tremendously successful next year. And Prime Minister, we're about
to run out of time. What are your plans over the Christmas period are you going to have a
break?
PM: I'll have a couple of weeks off, I think, John and you know, try and regain my sanity in full with
my family. And I know you're having a break yourself, and good on you.
JL: Yeah, well, when we get to the end of the year, we feel like we have done a year, and it
seems the older you get, you start to feel like you have done a couple of years.
PM: This has been a satisfying year for me we have had, as I said, three-quarters of a million job
growth since the election, we have got the Budget back into surplus, we have got the Accord
underpinning the low inflation rate, we have got a framework for a republic out there, we have
threaded together the biggest free-trade area in the world with APEC, I have just done the
Innovation Statement for the business sector, and we have now got this huge public change
in public housing. So, you know, I think that sort of activity I don't mind finishing the year, if
you like somewhat worn down, getting those big changes into place. Because I think that's
what the community reasonably expects Governments to do.
JL: If you could give Australia a Christmas present, what would it be?
PM: I think the continuation of strong growth in the next year which, at present, I think the
Govemnment is giving the country with low inflation and further integrating ourselves, in this
next 12 months, into Asia. I mean, I think they are the two things that are going to matter
most to the sort of economy... . when I'm out of politics, and you're off radio John, they're the
things that will stick to us.
JL: Okay. I hope you have a wonderful Christmas, and I hope you have a a successful New Year
I hope it is a wonderful year again for Australia, because it is a pretty important place to all
of us. I sometimes wonder whether people fully understand the complications of running a
country I know that quite often I don't. But one would hope that you and your Government is
doing it's best, as one would hope if John Howard were running the place, he would be doing
his best as well. What are the chances of him running it?
PM: Well, he might be doing his best, but the question is will his best be good enough for
Australia in this point in it's history? And, you know, just one change there that I didn't
mention in that group was the change in our forest policy, which tries to meet the dual aims of
the environment and a sustainable logging industry. Two weeks ago, we put away under
those deferred forest agreements, six million hectares of forest. And I think getting all
that.... . you know, appreciating the great inheritance we have here on the Continent, and it's
beauty, and it's nature, and at the same time, growing our industries in a way which is
harmonious with the nature and, again, finding our place in that region. I mean, that sort of
totality of view is the thing I think is the Government's trademark, and frankly, I just don't think
the Coalition understands that debate at all. I just don't think that John Howard's view of the
world which is basically to regard Asia as a problem, to not put that sort of premium on the
environment, to not have faith in people to run a decent industrial relations system without
trying to sort of press people into sort of contracts and grind them down I think a
cooperative, inclusive model is the way for Australia to go, and I think the proof of the
pudding is in the eating. We do have this strong growth, we do have the employment, we do
have the low inflation, we do have the integration with Asia and we are getting the place we
are putting a great premium under our environment.
JL: Okay. Thank you very much for your time you have been very generous, as I said at the
onset there wouldn't be too many world leaders who would front up and do it again, but I
thank you very much for doing it, and I hope early in the New Year we can talk to each other
again, and Happy Christmas.
PM: Good John, and have a good holiday.
JL Good. Bye.
ends