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PRIME MINISTER
TRANSCRIPT OF INTERVIEW, MAX WALSH ON CARLETON WALSH REPORT,
MARCH 1986
E 0 E PROOF ONLY
WALSH: Mr Hawke, congratulations on making your third birthday
as Prime Minister. Have you pondered in the last few days that
if you hadn't have gone to that early election you would have had
an election in the last month or so when you almost certainly
would have been returned with a larger majority facing another
36 months in office.
PM: No, I haven't. We made what we thought was the right
decision at the time to coincide with the half Senate election.
And I know that when we come up at the end of this full term we
will win again.
WALSH: At your address today to the National Press Club you drew
attention to the little shop of horrors you inherited when you
came to office in terms of the economic situation. But you then
went on to say that the conditions we now face are even more
difficult and more complex.
PM: What I said was that the goals, the objectives were very
simple when we came in. I said, I went on, you will recall, to
say that the mechanism, the means to turn the economy around
weren't simple. What I am saying is that the complex situation
now, paradoxically, represents the price we are paying for the
success of our policies. The high levels of economic growth that
we have generated, running at six per cent per annum up to the
last September quarter in non-farm GDP, has occurred in a
situation, as you know, of a current account deficit problem. We
are sucking in very high levels of imports with that level of
growth.-There seems, as you know max, to be a situation that
importers have carried some of those pricing impacts within their
profit margins, so there hasn't been the diminution in the level
of imports that you might have expected as quickly. Therefore,
what we have got to do in that situation is to pursue a policy,
we have been doing by monetary policy, to try and take the top
off the level of demand. What I am saying is that we have got to
walk that very tightrope between the levelling off process to
protect our external position while at the same time, Max, not
taking you back that far that you are going to produce a
situation where we can't maintain a sufficient level of activity
to cope with the unemployment problem.
WALSH: So in the very short term do you see the balance of
payments problems being the major constraint upon your economic
activies? PM: I think that is a fair statement. AS we went towards the
end of 1985 and have come into ' 86 that has been the major
constraint. I believe that is right.
WALSH: You made the point in your speech that Australia can't
afford to keep living on the savings of the outside world. I
have read that as saying that you saw some necessity to cut back
on overseas borrowings both at the public and private level.
PM: IT is the case that we have got to, as far as the public
sector is concerned which we directly control, I think reduce
the public sector borrowing requirement. Now, it is a matter of
logic, as you know, if you have got a gap between what you earn
overseas by your earn overseas and what you import then you have
got to borrow. The borrowing has got to be done.
WALSH: Yes, but you face a very high level of past borrowings at
a time when, would you agree, we are moving into a very difficult
situation in terms of our own terms of trade, major export
commodities. PM: Absolutely. Max, you are quite right there. What
Australia, I think, doesn't appreciate sufficiently, including a
lot of reasonably informed commentators, what a devastating
impact there has been in the change in the terms of trade in the
last 6 months or more.
WALSH: But I am really looking at the coming 6 months, because
it is starting, you see we still haven't seen the impact of the
oil price cut on coal prices, which surely will follow through.
We haven't yet seen the full impact of the American export
enhancement policy on grain prices.
PM: We also haven't seen, I mean I don't dispute those
propositions, but in balance nor have we yet seen Max, the impact
upon the level of economic activity worldwide of the reduction in
oil prices. And that increase in activity, which one would
assume, I think sensibly, can result from lower oil prices,
should mean a better-demand for a number of our products. I
mean, it is not a completely one-sided picture, I think you will
agree.
WALSH: Yes, but the trouble is that our major commodity exports,
our non-ferrous metals and our iron ore etc, there is simply so
much more competition now out there now than there used to be.
PM: But it is also the case, it is a matter of economic logic to
expect that if fuel prices are significantly reduced through this
period then that factor of itself should increase the level of
activity internationally. And to the extent that there is an
increase in the level of activity, that should, other things
being equal, be to our advantage.
WALSH: One of the things which you said today, you said, I even
think you said it was your proudest achievement, that you had
reduced real unit labour costs to the levels of the late sixties,
early seventies.
PM: I didn't say it was my proudest achievement, that was a
reference. But it was part of the achievement..
WALSH: Well, you didn't apologise and later you, you focussed on
this particular point. And while that is perfectly true in
respect of the manufacturing industry and that is what you were
talking about, is that our manufacturing exports are only a very
small proportion of our export situation.
PM: It's true. But what we have got to do as a country is to
increase the competitiveness of our manufacturing sector. And
I think one of the reassuring statistics recently, Max, has been
the evidence of increased investment in manufacturing. You will
recall that looking at the figures for the December quarter and
comparing them with the previous December quarter, there is an
increase of 46.4 per cent in manufacturing fixed capital
investment. That is a very significant investment. And it does
suggest that the judgement is being made, Max, by many people in
our manufacturing sector that they are now better placed than
they have been for anything like recent memory to take advantage
of the conjunction of circumstances to which I have referred.
WALSH: Well, what I really want to get around to saying is do
you expect that this surge in manufacturing investment will be
reflected in both increased manufacturing exports of a
significant degree and significant import replacement?
PM: I hope, well I am glad you went to that second because one
of the problems, talking in technical economic terms, has been
that the assumption that the depreciation would lead to import
replacement, the argument is that in some respects that has not
been possible because of the type of demands within Australian
are not capable of being satisfied, at this stage, by our
structure of manufacturing industry. Therefore we have simply had
to continue to get them from overseas, yes. It is my hope that
part of this longer term pattern that you are rightly directing
the viewers attention to will be an increase in the capacity of
Australian manufacturing industry to provide elements of our
infrastructure which hi. therto they have not been able to display.
The increase in competitiveness will reflect not only in
additional exports of manufactured goods but in additional
capacity to cover import replacement.
WALSH: Mr Hawke, if I could move on to BHP. John MacBean wants
to have the whole question of the Holmes-a-Court takeover bid
referred to the Steel Industry Authority. What's the Government's
attitude to this?
PM: Well, as I said at the National Press Club today, it is
arguable that under section 7 of the Act you could ask the
Authority to have a look at it. But it wasn't really intended for
that sort of purpose. In the end the Government Max, has to
satisfy itself about certain public interest questions and our
judgment is that the best way of satisfying ourselves on that is
4
to look at it directly ourselves. Nevertheless, I think it proper
that we should have some discussions with the Steel Industry
Authiority and in fact therefore what we will be doing is after
having spoken with BHP and having spoken with Mr Holmes a Court
we will, immediately following that, talk with Mr Roberts of the
Steel Industry Authority so that we can give him the benefit of
those discussions and ourselves receive the benefit of any
comments that he has got to make to us.
WALSH: Well, understandably the debate on BHP has to a large
extent focused on the iron and steel division but will your
inquiry into the public interest and your questions with BHP and
Mr Holmes a Court range into the areas of oil exploration,
mining? PM: I believe that we will range more widely than just the steel
industry although I think you can appreciate the pre-eminence of
that concern given the history since we came into government.
When we came in to government the position then was that BHP was
contemplating closing down its steel industry. I said I wouldn't
tolerate that. we brought in the steel industry and we have
transformed the industry. Now we are not going to allow a
situation to occur where the future integrity and viability, the
capacity for expansion of the steel industry is prejudiced. So I
think you will appreciate the pre-eminence of that concern. But,
no, we will be looking at these other issues to which you refer.
WALSH: And one of the incidental debates which has arisen out of
this particular issue of the BHP takeover is the habit of
takeovers where borrowings are used to replace equity capital and
the corporate tax base is eroded. Is this part and parcel of your
inquiry?
PM: Well, there will be questions to the two parties that are
relevant to that but in addition max, we have also asked Paul
Keating, the Treasurer, to bring to Cabinet in the near future a
broader paper on this which goes beyond just this takeover which
has its implications in that area.
WALSH: Just a final question Prime Minister, and nothing
connected with what we.. have been talking about but you must be a
little bit disappointed and disturbed that sort of in your third
birthday week that the appearance of unity in your Cabinet has
been a little shattered by a series of leaks......
PM: I don't accept that. Seriously, I am not just being a
politician being protective of his government. Let me say these
things, firstly, leaks have been a feature of governments of both
political persuasions for a very long period of time. I mean we
haven't had the situation yet where a whole Budget has been
leaked as happened under the Conservatives point one. Point
two, nevertheless I am disappointed that there has been that
leak. But point three, let me make the point, ag I did at the
Press Club today, I respect my Ministers in the welfare and
associated areas wanting to protect the interests that they
represent. I mean if they weren't in there trying to fight for
and protect those interests they shouldn't be in the job.
WALSH: You are referring to the letter you received?
PM: Yes, sure. But going to the issue of the leak of the
document which was in yesterday's Sydney Morning Herald and at
least a discussion about a document which was reflected in
today's Sydney Morning Herald, I would rather, of course, that
that had not occurred and I am annoyed about it. But what I am
saying is that that reflects no split in the Cabinet. The
spending Ministers, if I can go back to that group of seven, in
their letter, the letter is a perfectly respectable letter. They
recognise the relevance of the economic environment. So what we
are seeing is the classic case of a government having to balance
the need for expenditure restraint against the natural instincts
and interests of Ministers who have specific portfolio
responsibilities. As I said at the Press Club and I repeat on
your program, we don't have to be in a position where we say, oh
look please trust us, you know we'll work it out. We have been
here for three years, we have proved the best the economic
managers in the post war period of Australia, we have produced
record growth, we are outstripping the rest of the world. And we
have done that in a process which has involved expenditure
restraint, a balancing of competing priorities. We have done it
three times, we will do it again.
WALSH: OK Prime Minister, thanks very much.
PM: Thanks Max.
ENDS