PRESS OFFICE TRANSCRIPT
PRIME MINISTER'S
PRESS CONFERENCE FOLLOWING READING OF BUDGET SPEECH BY TREASURER
16 August
Prime Minister:
There are one or two important factors about the Budget which
I'd like to remind you about first. The Treasury paper estimates
that by next June or earlier inflation in Australia will be down
to That's going to be below most of-our major trading
partners. Japan and Germany might have a lower rate of inflation,
but the United States, Canada, Britain, France and Italy are
countries that will certainly, I would believe, have higher rates
of inflation. That will mean that through the course of this
year Australia will come to be performing better than the
average of OECD countries, both in relation to inflation and
in relation to output. That in itself will do much to encourage
investment from Australians, it will do much to encourage
investment from overseas. As a country that is very well
endowed with natural resources, we are well placed to attract
more than our fair share of investment from overseas, providing.
we can offer a stable economy, political stability, and commonsense
in our dealings with other nations. Under those circumstances
I think Australia is much better placed to extend the difficulties
of world trade whatever they might be than are many other nations.
Our performance on inflation is now starting to assist our own
exporters, assist our own industries in a very material way, and
that's going to be reinforced. One of the threads, twin threads
coming through the newspapers this-morning is that it is
recognised that the Budget will bear down on inflation further
a nd it is also I think recognised the Budget will make it possible
to continue the steady but sustained movement downwards in
interest rates. I have indicated before a 2% fall in interest
rates to an average home buyer is worth something like
a week. A move down in -interest rates helps all businesses,
helps anyone who borrows money, helps home purchasers, helps
exporters, helps farmers. If we are to get back to the kind
of economy that is necessary, to the kind of economy which
does offer jobs to all those that want to work, then getting
inflation down and keeping it down, getting interest rates
down and being able to keep them down I believe is of quite
critical importance. The Government's Budget is certainly
contributing to both these objectives in a very significant
and major way. The overall impact of this particular Budget
on the Consumer Price Index of the December quarter should
be to make the Consumer Price Index movement about h% less
than it would have otherwise been without the impact of the
Budget, and that just goes to reinforce the overall thrust
of the Budget that John Howard introduced last night.
QUESTION: Prime Minister, when would you expect Building
Societies and Banks to lower their interest rates?
PRIME MINISTER: I think that again you can't put a firm
time scale on that. There has been a pause in the interest
rate movement in the last few months. A pause in the first
instance because of the run down period of April, May, June
and then because of the blow-out of last year's deficit
I think there was a further pause while people waited to
see what we were going to do in this Budget. Well now they
know. There is a Government loan in place, open for subscription,
and getting the results of that will also be very important
of course in further development of these policies.
QUESTION: Do you expect interest rates to come down within
three months time?
PRIM4E MINISTER: I would be expecting a movement down through
the course of this year. Without putting a specific timetable
on it, I would hope the movement can continue, because
there has already been a significant movement in Government
rates. I would hope that the move can continue sooner, rather
than later. Much sooner rather than later. I'm not putting
a figure on that, because all through we have emphasised a
steady and sustained move down in interest rates. We don't
want the kind of situation that developed in the United
Kingdom, where interest rates came down very rapidly, and then
in the April, May, June period of this year interest rates
went up 3 again.
QUESTION: Can we assume what's said on page 27 of the Budget,
that the Federal Government will start to tax for public
servants wages ( inaudible)
PRIME MINISTER: You can assume from those sentences that
if the wages bill rises unduly and significantly beyond our
own expectations, we will then again look at the programmes
of Government. We are seeking to emphasise the point that
there is not a bottomless fount out of which wages can be
paid irrespective of what people demand, irrespective of
what the Arbitration Commission determines. Quite plainly
private employers have had to alter the number of people
on their own payroll as a result of wage decisions. One of
the reasons for the shortfall in revenue was lower company
taxes than had been anticipated I think because of less
success in the wages front than we had anticipated. It has
to be understood that the trade union movement as a whole
has the choice before'. it. It can choose to press for ever
higher wages for those in work at the expense of those out
of work, or to show some greater degree of moderation to
enable the circumstances to be developed in which more
jobs can be available in Australia. I know that there are
some people who get up and say they've been trying to grind
down real wages, but on the figures that I have average
weekly earnings increased last year marginally more than
the Consumer Price Index. Now that doesn't sound like the
erosion of anyone's living standards. It doesn't even
sound like restraint.
QUESTION: Un the rise ifithe price in petrol inaudible)
PRIME MINISTER: If you look at that element by itself of
course it does contribute to an increase in the Consumer / 3
Price Index about or But you have also got to
understand that that's not only a revenue raising measure.
It is also designed to achieve the proper and best allocation
of resources. Looking at the effect of the Budget on the
Consumer Price Index you have got to have in mind the total
impact in the Budget. The health financing changes, the
reductions in sales tax on automobiles, have a very significant
effect of reducing the CPI, and that movement more than outweighs
the increases that would come from greater exercises
in taxes of that kind or from the oil levy. So overall the
impact of the Budget in the December quarter should be on
our calculations, a favourable one by about 1%.
QUESTION: Prime Minister, how dependent is the Budget, the
success of the Budget, on the fact that the Arbitration
Commission would toe the Government line, and also because
of the increase in personal tax would you now expect trade
unions to move outside indexation to try to compensate.
PRIME MINISTER: No I wouldn't. I wouldn't expect them to
move outside, because if the Government has to pursue a
certain matter as one of policy, it's quite wrong for one
particular section of the community to try and insulate
themselves from that policy by other countervailing actions.
I would expect the Arbitration Commission to recognise that
and to recognise that very plainly. Indeed in relation to
the movement towards import parity price for oil which
began a year ago, the Arbitration Commission has already
recognised that, so I would expect them to continue with
the decisions that they have already made, and I also
believe that even if there are some trade union leaders who
don't recognise it, the overwhelming majority of trade
unionists know quite well that-wage increases that run too
fast. take jobs away from other people, lead to inflation and
don't do them any good at all. / 4
QUESTION Apart from the CPI rationale, what reasons are behind the
sales tax on motor cars. It obviously goes against the .( inaudible)?
PRIME MINISTER
Icbn't know that it does. It is an industry that has been in
difficulty. Most of the industry sales tax are in the
range, and cars have been for a long while at the higher end
of the range. We thought it ought to be reduced. It is a
very significant employment area the component industry
is a very large one, and we believe that it would be sensible
and rational if automobiles were brought down into the general
industry range of 15
QUESTION A follow-up on that. Was the CPI consida-ration a main reason
for bearing the higher cost of this health insurance .( inaudible)?
PRIME MINISTER
No, the main reason is the greatly simplified universal health
care that is now available.
QUESTION But it is very expensive for the government?
PRIME MINISTER
Health care is expensive however it is paid for. It is much
more simple. There was plainly a degree of complication in
the operations as they were as they are now until the changes
are introduced. I think it had been shown that that complication
was undesirable. What we are doing, we are not altering the
hospital side of things at all, we are offering a basic cover for
all people, leaving it open for themselves to decide whether they
want to insure for anything over and above that basic cover.
So the individual choices are much more simple. The CPI element
was one part of the total decision, but I don't think you can
pick one part out and say it is more important than another
QUESTION Inaudible overall revenue..?
PRIME MINISTER
No I don't think so because you have to look at other things.
You had to look at the changes that were going to have to come
in Medibank if it had not been altered increases in the levy,
increases in the levy ceiling, matters of that kind.
QUESTION Prime Minister, can I ask you how long you think the Federal Governmen'
will subsidise at a rate of 40% of scheduled fees?
PRIME MINISTER
I can't see any reason to change it. We have made that decision.
QUESTION You think this will last for a number of year?
PRIME MINISTER
I think quite plainly we have got the continual battle to
contain health costs. A number ofmatters that Ralph Hunt has
introduced have been very successful in that. Negotiations
going on with the States about hospital financing are designed
to achieve a greater rationalisation of hospital costs, and
a better use of hospital beds than has occurred up to the
present time, because, as I am advised, some States are opening
new hospitals when they only have a 60% use of existing
facilities. That seems to be very-costly to the total community.
I belive that any government would be foolish if it committed
itself absolutely to a particular detail, knowing that the
containment of hospital costs, medical costs, generally is one
of the most serious problems that every government has had to
face western-type governments-in recent years.
QUJES TION
Do you anticipate, Prime Minister, that this scheme as such will
be maintained by the Government?
PRIME MINISTER
The scheme as such yes, because it is a great improvement and
it is greatly simplified.
QUESTION What will happen when bed charges rise and ( inaudible)?
PRIME MINISTER
I don't know. That depends upon detailed negotiations with the
States about the restraint in hospital costs generally.
I have got very little sympathy for a view that says let's
not worry about being responsible in terms of hospital cost
management, let's just put up bed charges regardless to cover
the costs of our own inefficiency I don't think there shouldbe
much sympathy with that sort of view anywhere. We will want to get
to a situation in which there is glreater rationalisation
and greater economy in hospital costs in the States. It is also
worth noting that between the States there is a very great difference
in hospital bed charges. I don't think anyone can draw a
conclusion from that that in some States people are looked after
much better than others. I think the additional costs come from
./ 6
different reasons.
QUESTION
Will the decisions on taxes backdated to July 1 the decision
to only have one pension increase a year are you confident
you have the full support of the Senators in those two areas.
PRIE~ MINISTER
Of course we have. You have got the circumstances in which the
tax cuts that were introduced on February 1, together with
half indexation, still leave a very substantial benefit to the
taxpayers of Australia. I think you need to understand the
reasons why it was necessary to have the temporary surcharge throughout
this particular year. At this time last year tax undere: stimated the
need for refunds by about $ 350m. In addition to that,
non-PAYE tax was over estimated by about $ 400m. If we hadn't
had those circumstances, which were estimates given to us,
we would have had a different base, and I believe this temporary
surcharge would not have been necessary. In addition to that
and looking further into the future, the outlook for the rural
area, rural incomes is much better, and I would think the
outlook for company incomes is also much better. We should
strengthen the revenue position next year arnd beyond.
I would like to make one other point about the surcharge.
Without tax indexation of course it would not have been necessary.
We would have quite deliberately been able to keep the extra
money comning through the inflationary process and maintaining
tax'scales as they might have been. So this is an example of
tax indexation forcing governments to do what we said would
happen in the very outset -that if they felt it necessary to raise
extra revenue, they would have to do it plainly and openly and
not through the secret process of inflation. I think that
is healthy and I think it is healthy that we have to justify it.
QUESTION
Mr Fraser, next year when you reach your projected 5% inflation rate..:
PRIME MINISTER
I would just like to interrupt at that point because people might
have greater reliance on that figure if they know that that is
the official Treasury forecast, in other words, it is not a
political figure it comes from our official advisers who
have some expertise in these matters. 7
QUESTION Point taken, When it is reached next year will you then
consider some stimulation for the economy to correct unemployment?
PRIME MINISTER
Obviously you judge the economy as it goes and from the outset
we have had no reason to change the main thrust of our policies.
One of the things that people forget, I think, is that one of
the greatest stimulus that can come to this economy is through
lower inflation itself and lower interest rates. Most people
look upon stimulus as something that is Government induced by
Government spending more money in this direction, a Government
spending more money in another direction no recognising that
in circumstances of high inflation and interest rates that are
too high that kind of government stimulus just doesn't work and
hasn't worked anywhere in any country that has tried it.
Quite obviously the proper level of government expenditure needs
considered judgement as each year passes. The point I want to
emphasise is the stimulating effect of getting inflation down,
leading to a return of full confidence and getting interest
rates down, which also, of course, will do more to help all peoplewhether
it is home buyers, pensioners, businesses, small businesses,
large businesses, farmers, exporters it will do more, these
two things, inflation and interest rates, will do more to help
these people than any single act of government.
QUESTION
Prime Minister,, you have stressed that the inflation prediction
comes from the Treasury is the Treasury responsible for
miscalculating the Budget deficit by $ 1.2 billion last financial
year, and if they were how do you as Prime Minister feel about
this sort of expertise?
PRIME MINISTER
I believe the Treasury officials and Tax officials are highly
skilled, highly dedicated and very capable. Also, I think we
need to understand that over the past there have been swings
and changes in the Australian economy that might have tested the
models of the past. At the same time I would believe that the
forecasts, and because of that experience last year, the forecasts
for this year will, I believe, be more than cautious, done with.
more than usual care. After what fell out last year I think that
is only natural. They were obviously estimates that camne from our
official advisers, but I don't say that as a point of criticism
or as a point to detract from the responsibility of government
in relation to it.
QUESTION Isn't it fact that you are now forced into tax increases because
of this miscalculation?
PRIME MINISTER
That may be, and I have indicated that but at the same time, I believe
Australia is as well advised in these particular matters as
any particular country. I did draw attention to the fact that
in recent years a number of countries, including Australia, have
been through swings and changes which I think test the models
of former times, and therefore sometimes make forecasting more
difficulty than it might otherwise be. I then went onto make
the point that because of the experience of last year I have
got no doubt that the forecasts and estimates for this year
are cautious and very very carefully made.
QUESTION Do you see any contradiction in your advocacy internationally of
freer world trade and the imposition last night of another
12k7% customs duty on imported manufactured products?
PRIME MINISTER
Not at all because that is coming in an area where there is
cuantitative restrictions of some kind. I think it needs to be
uinderstood that our markets by comparison with the markets
in most countries around the world are open and open in the extreme.
In spite of some ill-advised comment from time to time to the
contrary, I will continue to assert that. I have had correspondence
from a particular textile firm that sought to export textiles
to Iran and to the Philippines, and on trying to do so in both
countries was told, no, this is a high labour intensive industrywe
reserve it totally and absolutely for the local market, the
local producers. There is a textile firm in Australia that is
capable of competing in those markets, it is obviously doing a
good job, it is obviously efficient, and it obviously ought to be
given an opportunity to compete. I think that puts a different
perspective on it, especially when we import more textiles,
apparel and footwear, sensitive goods, from developing countries,
and in particular from ASEAN countries, than any other developed
country in the world we are now up to about $ 3 a head, while
the United States and other countries are down around 50-60(, N
a head, or even much less than that. I have made the comment
before that if United States and Europe, and I think Japan also
bought as much per capital from ASEAN of these sensitive goods
as Australia does those countries would be selling an extra
$ 1.2 billion worth of goods a year. Let me take another example
of how our market is an open one: we allow overseas manufacturers
to compete for about 20% of the Australian automobile market.
If you go to Europe you don't hear very much about it they have
negotiated voluntary restraint agreements with the major exporters
to their market, which is basically Japan, and a voluntary restraint
agreement is not particularly voluntary because it is always
negotiated under the threat that there will be no access unless you
come along and sign. In Britain it is restricted to 10-12%~
of the market; in France to 3-4% w of the market; and Italy to
of the market. Compare that access into those markets, allegedly
free and open markets, with access to our market of
It really is time that Australia stopped doing itself a disservice
by continually trying to point out how protective we are by comparison
with other countries, when in fact our markets are much more open than
those in most other countries.
QUESTION You reaction to two things: Bill Hayden's claim statement,
that we are heading for unemployment in excess of half a million;
Bob Hawke's statement that this Budget will cost an
Australian family an average of $ 7 each week.
PRIME MINISTER
How much more this Budget will cost Australian families in part
will obviously depend on how much tobacco and how much alcohol
Australian families consume. You have also got to understand that
many Australian families will be relieved from paying the health
levy, and that's a reduction in tax, and depending on what choices
they make, I would believe the insurance they take out will
cost less than the levy, or cost less than the full medical
benefits insurance that they would now be pursuing. So there is
a gain to Australian families there. In addition to that, an
Australian family who happens to be bp. ying a new motor car, will
save, depending on the price of the car, around about $ 500
that is a saving for anyone who does buy and new tar and there
is obviously a consequential saving on seoncd-hand cars, and
further we want to note the tax advantage that came from
half indexation on the 1 July. The extent to which this
Budget does cost Australian families will depend, to a not
insignificant extent, upon the decisions of the family concerned.
QUESTION Unemployment claim by Mr Hayden half a million and more?
PRIME MINISTER
Last month the unemployment figures were I am not going to
say they were optimistic, but they were better than had been
expected, and whether that is a month which turns out to be an
aberration or whether it is the beginning of a different trend
or not, it is too early to say. One thing we do need to understand:
the special training-programmes of the government are doing a
very great deal to assist many young people, and over 100,000 are
in training at the present time. These training programmes
are going to be maintained, and additional funds are going to be
made, very substantial additional funds, through the course of this
year. Our concern with those who are unemployed is as real as
compassionate, as any person's in the corrunity. The argument
is about how you overcome the problem of unemployment.
Our political opponents have always had the view that if
governments spend more money no matter whether they get that
money by taxes, or whether they just go to the printing press or
buy another printing press because they run out of capacity to
print they believe that that solves the problem of unemployment.
They believe that governments spending more money solves the
problem, whatever problem that might be in a community.
I don't believe that, the government doesn't believe that.
I do believe that getting the underlying balances right in the
Australian econbmy is the only thing that will lead to a
better employment situation getting a proper relativity between
wages and profits; getting inflation down and keeping down; and
getting interest rates down. These are the things that will affect
employment. In terms of this Budget nobody has denied that it will
get inflation down further, nobody has suggested that it won't
help in getting interest rates down. That being so, I suggest
that it is the Budget that will do more for employment than any
alternative that might be open to us.
QUESTION Prime Minister, the official inflation forecasts, of what
is the official unemployment forecast for next year?
PRIME MINISTER
I don't think it varies very much. The unemployrnent. situation is
not good and we haven't tried to hide that. It will be significantly
affected by what happens on the wages front, but one of the things
which is holding unemployment high is quite clearly the ccntirjued
rate . of ircrease in wages. I have already mode the point that
average earrdimg-s increa! . cd more in the 12 months to June than the
Consumer Price Index. That doesn't indicate any restraint on the
wage front at all. indeed, the reverse.
ENDS