PRIMEST MINISTE
TRANSCRIPT OF QUESTION AND ANSWER SEGMENT, AUSTRALIAN
FINANCIAL REVIEW POST-BUDGET DINNER, SYDNEY CONVENTION
CENTRE 22 AUGUST 1990
E OE PROOF ONLY
QUESTION: Would the Prime Minister enlighten me as to
the decision making process which led to the decision to
send our Australian naval ships to the Gulf?
PM: Let me first of all and I'm sure none of you
think this. There are some members of this community
who suggest that what happened was that I was sitting
there in the Lodge playing with Whiskey the cat waiting
for George Bush to ring. I'd given no thought to this
matter at all. I mean George rang and George said send
some ships. I said yes George, thank you. Well that's
not how it happened. That's not how it happened. He
rang me on a Friday which was the end of a process not
the beginning. There had been raised in Washington
earlier that week at the diplomatic level and then at the
forces level the question as to whether Australia may be
prepared to send some force. So there had been a great
deal of discussion going on. I was in the fortunate
position of being informed about all that discussion,
being privvy to the intelligence about what was going on.
I'd also had the good fortune to have met with my Cabinet
ID on the Monday when they had unanimously agreed to the
sanctions that we had agreed to put on immediately and
that involved the stopping of the imports of oil from
Iraq and exports from Australia. A unanimous decision by
the Cabinet on that Monday the 6th of August that we
would endorse and support any United Nations Security
Council resolution. So I had a clear sense of the mind
of Cabinet on that Monday the 6th of August. So there
was my knowledge of the Cabinet. I was involved in being
informed about developments in the area and also the
discussions -that * were going -on-in,-Washingtonat the
levels to which I referred. And so I had come to the
conclusion very quickly in considering all these things
that while this was one of the most serious decisions
that I had to come to that essentially the principles
were clear. I took the opportunity of discussing the
matter with the members of my Security Committee which
has the responsibility of dealing with issues of this
kind. I had their unanimous support. So by the time
President Bush rang me on Friday I had a clear view a) of
the facts, b) of the principles involved, c) of the mind
Of My Cabinet. Armed in that way I was able to indicate
to President Bush what my view and the view of my
Government would be. So without going any further they
were the processes. The second question was what
mechanism does the Prime Minister believe will lead to
the referendum on abolition of States' rights being
successful? I don't know where that question comes from
because I've got no proposal and I'm not aware of anyone
else who's got a referendum to abolish State rights. So
all I can say is if anyone conjured up the idea and tried
to put it I'd like to be having a bet on the outcome. I
haven't got any such proposal. What I have got, which is
very important is a, what I hope will be a path breaking
proposal to bring the Premiers together with me on the
last two days of October in Brisbane. Whoever would have
thought a couple of years ago that you would have been
having a constitutional convention of Premiers in
Brisbane to talk about the relationships between the
Commonwealth and States. But such is the rapidity of
change in the world in which we live. That conference,
and I pay full tribute to the Premiers, including you
know that rare species now, a Liberal premier, Nick
Greiner, I give him absolutely full marks for his
positive response. At that conference what we will be
doing will be to discuss how we can responsibly as
political leaders in this country go about in a more
effective way the discharge of our functions. There's
too much overlap and duplication now. What we are going
to seek to do is to work out ways in which, if it's
better for the States and local government to do
something, then we would get out. If it's better that we
do it, they would get out. It is not a cost saving
exercise although obviously cost, there would be savings.
But that's a residual. The purpose is to try and get
more efficient, effective government and delivery of
services to the citizens of this country. That's the way
in which to go about reform in this country. I don't
know where this idea of a referendum to abolish State
rights comes from. It hasn't come from me.
QUESTION: The question I'm afraid comes back to a
subject that's had a lot of exposure and it's the one of
foreign debt. I say that you made no reference in
referring to your forward policies on reduction or even
stabilisation of foreign debt other than your comment on
increasing exports and lower imports. I pose two
questions that you could perhaps comment on. First is
your view. of. the trend -of foreign.. debt and the second
one, where are the increased exports coming from?
PM: Let me say this and I know in opening a reply in
this way there may be some guffaws and hee-haws. But
nevertheless what I say by way of opening is, I think,
indisputably true, that the origins of our problem in
this regard were what we inherited. Now let me say that
that is not seen as simply a statement of convenience by
myself. I refer you to what was said on page 2, dot 56,
2.56 of the authoritative budget statements which are
prepared not by the Government but by the Treasury. They
make, I believe, an extremely telling point in their
conclusion on this section. They say finally the marked
deterioration in Australia's external accounts which has
its roots in the deterioration in the public sector's
financial position between the mid 1970s and early 1980s
has left the Australian economy with a long task of
adjustment. Now that as I say is the assessment of the
Treasury as to the origins of the problem. We had a
country which was in very very serious decline when we
came to office. Australia was unable to stand up to
international competition. It had for too long suffered
under a overvalued currency and it had drawn itself
behind protectionist barriers, and as you know a massive
public sector deficit which at the Commonwealth level was
over $ 9 billion when we came in and that's not counting
the States. That massive public sector deficit more than
accounted for the imbalance between domestic savings and
investment. Now what we have been doing is to try and
tackle the fundamental problems which mean restructuring
the Australian economy to make it more competitive. Let
me say that you would be aware I'm sure of the basic
success that has been achieved there now. We've had, as
you know, a massive surge in investment in this country.
It came to its peak over 1988 and 1989. And this has
involved the beginnings of a fundamental restructuring of
the Australian economy which is what is necessary to deal
with the fundamentals of our debt problem. Now obviously
that investment as it occurred added to our debt problem.
Obviously it added to our debt problem. But the basic
thing is it's improved Australia's productive capacity
and as such it's reduced and enhanced our ability to
repay and to reduce foreign borrowings in the future.
Now obviously in this respect if you're looking about
trends, what this Government has done has been of
fundamental importance in reducing the call by the public
sector on the savings of this country. You ought to
understand the magnitude of that achievement. It's been
unparalleled. What we've done is succeeded in turning
around a public sector borrowing requirement of over
seven per cent of GDP in 1983-84. That's what it was
the public sector borrowing requirement to the
situation where again now we have a zero public sector
borrowing requirement. Now obviously that represents
with a GDP now of $ 400 billion, that turnaround of 7.1%
represents a reduction of $ 28 billion in the call by the
public sector on the savings of this country. So if
you're talking about trends. and. what's happening in
fundamentals in regard to our debt, that's the great
contribution which this Government has made with the
co-operation of the community. It simply means that by
the massive surpluses that we've created, and it's been a
bloody hard job to create them, it's taken thousands and
thousands of hours over these last seven years sitting in
that damned Expenditure Review Committee examining line
by line, department by department, making massive
savings. But that's meant that we have ensured now that
the public sector is now making no net call on national
savings. In the result we're now seeing the situation
where we can say to you in this Budget that the current
account deficit is being reduced by a full one per cent
of the GDP. Obviously also as a result of these
successive surpluses, and I remind you of what I said in
the speech, that since comparable records have been kept,
there have only been four occasions in which the
Commonwealth has been in surplus and that's our last four
years. As a result of that it's enabled a massive
program of debt repayment as far as the Commonwealth is
concerned, including as you'd appreciate, very
substantial repayments of foreign currency denominated
debt. That's what we've done. I ask you in those
circumstances to look at the composition of Australia's
overseas liabilities. This is the latest figures as at
the 31st of March. The private sector, the private
sector owed 64% of our debt. State governments owed 16%.
Statutory authorities owed 25%. And the Commuonwealth
Government is a net foreign currency creditor making a
four per cent contribution, a negative four per cent
contribution to debt. So those are the figues. If you
want to look at the trend we have a situation now where
the debt is, that's our net debt I'm talking about, at
the 31st of March was $ 124.3 billion. That was 34.2% of
GDP. That is a situation now which is the same as it was
in September of 1986. In other words we haven't had a
deterioration since then. Now my friends I don't give
that answer, and rather long answer with any sense of
complacency I can assure you. Because, as I said in my
speech, we have the problems of inflation and of our
external position but I do believe that we are showing
now that we're moving into a position where we're getting
that move to the balance we wanted. We've got to have a
reduction in domestic demand. Gross national expenditure
will be zero this year in terms of increase and the whole
increase in our gross domestic product will come from net
exports. And that's what this country's got to do.
We've got to continue to do it for some time. So we
shouldn't be complacent but we should recognise also,
another factor which you will have heard myself and Paul
Keating refer to and that is that in this period that
we ' ye in office we've seen our Australian investment
overseas grow to the order of $ 60 billion. Now if we
hadn't done that, and that is going to be for the long
term benefit of Australia, as it plugs in to the best
developments overseas, if we hadn't had that our net debt
position would have been at the order of $ 50 billion
which is a -very . dif ferent f igure.. -So when you take all
those things into account I think we have reason not for
complacency but for a fairly considerable degree of
confidence in the capacity of Australia to meet these
problems, particularly as long as you continue to have a
government which is going to do what no other government
has done and that's keep on whacking out pretty
significant surpluses for you.
QUESTION: Prime Minister, the Government has done a
great deal to discourage spending. Is there anything you
intend doing to encourage personal savings among
Australians? PM: Well of course the most significant thing that we've
done there and something that should've been done a long
time ago is to encourage people in the field of
superannuation. You don't want me to go into detail to
all the changes that we've made. But when I mention
superannuation look at the smile that comes over the face
of my friend, Stewie Fowler, here. Look at it. I mean
he beams as soon as I mention the word and so he should.
Because what we've done is to, by specific decisions in
the fiscal area, encouraged people to make provision for
their own future and that's the single most important
thing that any government could do. You know the sorts
of figures that have now been talked about as to what
that will mean in the generation of additional savings by
the end of the We were talking in terms of hundreds
of billions of dollars that are going to be accumulated
as a result of these decisions. But we haven't confined
ourselves to those sorts of decisions, as important as
they are. We've also tried to persuade the trade union
movement and employers that it makes a great deal of
sense to channel a path of their claim upon the growing
wealth of the community, not only in terms of payments
for money wage increases but to do it by way of payments
of superannuation. Now that has had the combined affect
of being a significant part of increasing the savings of
the community but also of itself reducing the demand that
otherwise would've been made for wage increases which
would've been inflationary and of itself been counter
productive to savings. So there you have the basic
contribution that this Government has made and which has
never looked like being made by any other government
before us very specific provisions in the field of
taxation to encourage people to save and a redirection of
the large measure of the thinking of the trade union
movement to ensure that they think in terms of making
their claims not just in a way which can add to inflation
but which is more likely to have the long term benefit
flowing from an addition to savings. Now those are the
things that we've done, nothing ever looks like it's been
done before and it's going to make a very significant
difference through this last decade of this century and
into the beginning of the next in marshalling the savings
of the community.
QUESTION: . Mr. Prime Minister,. we. can. certainly empathise
with your problems and frustrations, sitting for hours
and hours on the Expenditure Review Committee of your
Government. You should try sitting on the expenditure
review committee of our company. The question is please
summarise the reasons why you believe it is not in
Australia's long term interests to introduce a broadly
based consumption tax.
PM: Well I'll certainly be very pleased to answer that
question. But may you first of all permit me a gentle
rejoinder to your lament about the problems you have in
your company by saying this; that before you, at your
company meeting, engage in your whatever period it is, a
quarter of an hour or hour of lament, please go on your
knees and thank my Government for what we've done for you
because under this Government we have massively changed
the distribution of national income from wages to
profits. When we came to office company profits were
down at an abysmally low about 11%. They peaked up at
19% and they are now averaging, as you know, a figure far
beyond anything you experienced before we came to office.
Not surprising because the other side of that coin is of
course that under the period of my Government non farm
real unit labour costs have been reduced by 10.1%. So
two sides of the one coin. What we've done is to
persuade the trade union movement to exercise massive
restraint, shift the share of national income from wages
to profits which by and large the business community has
then reflected into increased investment. So before you
go into your lament period give us thanks for all that.
Now is regard to the consumption tax, let me say that we
have already ruled out a consumption tax and we see
absolutely no reason to change our position. Let me make
it quite clear as Paul did in the House today. We were
contemplating and seriously contemplating back in 1985
but the whole tax structure has changed since then. The
business community in its " wisdom" in 1985 used its best
endeavours and here again Stewart's sort of shuddering
a bit because he knows some of the background to it but
the business community in its infinite wisdom at the tax
summit in 1985 put its thumbs down on a consumption tax
and INTERJECTOR: Fools.
PM: They may have been fools but nevertheless the
business community's representatives said no to a
consumption tax at the tax summit in 1985. So if you've
got any concern about there not being one where it
would've been appropriate to bring it in, you talk to the
representatives of the business community who gave it its
thumbs down in 1985. So having been in a position where
the trade union didn't want it, the representatives of
the welfare community didn't want it, the trade unions
didn't want it, we then went about a fundamental
restructuring of the tax system and we now have a quite
different position in 1990 from that in which it was
sensible-o-. contemplate-the-~. consumption tax-in 1985. Now
there were obviously very many difficulties in ensuring
that low income earners and those on fixed incomes would
be adequately protected. Indeed the best estimates that
are available from our official sources are that if you
were to bring in the consumption tax rate of 15% that Mr
Reith he's the Shadow Treasurer that he's been
talking about he's a special I can tell you, he's a
special. You talk about 15% consumption tax and you
brought that in, it would be at a cost to revenue after
you're given full compensation of some $ 3B or $ 4B at
least. That would be the cost, the nett cost. In
addition to that, of course, look at what would happen to
inflation. You would have a very significant boost of
probably something like 10 percentage points to
inflation. Now my friend, the Leader of the Opposition,
with the language that could only come from a rather
naive academic, said that would raise the price level but
it wouldn't increase inflation. Well this is a nonsense
because of course the very fact of that very significant
increase at that point of time would be fed into the
wages level. We couldn't have a situation in 1985 in our
discussions where the trade union movement would buy the
proposition of discounting to that affect and a Liberal
Government would never be able to get that agreement. So
you'd have a massive increase in the price level which
would then be fed into the inflation position of the
country. You couldn't begin to contemplate the
introduction of a consumption tax from the point of view
of a Liberal Government where you didn't have a wages
Spolicy. They have no wages policy and therefore a
consumption tax would be a guarantee for a continuing
boost to the inflation level in this country. So all
those reasons are not something, I can assure you my
friends, that are flippantly delivered. We seriously
thought about it at a time when it was appropriate to
consider it. The community, including the business
community and significantly the business community, gave
it the kybosh. So we have brought about a situation now
where we have one of the most efficient and fairest tax
systems in the world. As the Treasurer said in his
Budget speech
INTERJECTOR: inaudible
PM: Well you get the ooh's and the aah's from the
thoughtless. The fact is, as was said in the Budget
speech, that according to the recently delivered OECD
figures Australia has the third lowest taxation of all
OECD countries. The only two countries which have a
lower taxation regime are the United States and Turkey.
It's not a bad performance and for all the reasons I've
given it would be deleterious for the welfare of
Australia now to introduce a consumption tax.
QUESTION: The ACTU has just finished its executive
meeting in Melbourne which endorsed an across the board
approach of direct negotiations with employers to achieve
the.-aims.-of-accord mark-6. In. a.. press conference a short
time ago the ACTU President, Mr Martin Ferguson, said it
was possible that the ACTU would not go through the
Industrial Relations Commission at all. He described it
as irrelevant. Do you support this type of direct
negotiation? PM: Well I read what you say as reporting what Martin
Ferguson has said. I would want to see and hear from
Martin Ferguson precisely what he said because you will
have noticed those of you who watched the television last
night that Martin Ferguson went out of his way to restate
the commitment of the ACTU to the agreement that had been
reached with the Government. Those were his very
precise, specific, unarguable words that he used last
night in his comments on the Budget. He said that they
intended to adhere to their position and that's one which
is enmeshed into and foundational to the Budget where we
have predicated a 7% movement in earnings during 1991.
So I would be very surprised therefore if either Martin
Ferguson or the ACTU has in the next 24 hours changed
that position. Now as to what they may be saying in some
sort of negotiating phrase before the September meeting
of the Industrial Relations Commission which has now
been scheduled, I don't know. But my belief is that the
ACTU and this is the important thing as far as the
community is concerned will adhere to the commitment
it's made to the Government of an aggregate wages outcome
of 7% in this financial year. Now if they have some
different view about whether that will be done in part by
negotiation and part by the Commission, I'm not aware.
But the important thing, the foundationally important
thing as far as I'm concerned is that they retain a
commitment to that aggregate wages outcome because it's
that which is relevant to proper macro economic
management. QUESTION: Mr Hawke, you have spoken a lot tonight about
the discussions in regard to the telecommunications
industry or that are forthcoming. Our question is will
the outcome of the forthcoming debate about the form of
the telecommunications industry play an important part in
determining who is your successor as Prime Minister?
PM: Well I'm very thrilled to see, and I hope you
understand the important implication of your question
and it is this that we will win the next federal
election. I thank you for the confidence that you repose
in me because we will, I believe, win the next election
as we deserve to. Now that is the point at which the
question of my successor will arise and I don't want to
contemplate on that, you know what my thoughts about it
are. The question of a successor will not arise before
the next election so what our friend here, Michael Davis
from Merrill Lynch International Australia Limited, is
telling you so it's a good tip, you ought to get your
money on ALP is going to win next federal election.
That's the headline that should come out of tonight. Now
as to what will happen in that very important debate, I
can't say with precision. I addressed it in my speech
but I do believe that the Party will understand that
there has to be change. In the process of that debate,
Michael, and in the processes leading up to the
conference there will be a pretty vigorous exchange of
views and some of the people who in some later years will
be appropriately considered for the leadership of the
Party, will play a part in that debate. Obviously the
man most likely to succeed me after the next election is
Paul Keating, he'll be involved in the debate. Another
young man with ability who could be properly considered
down the line, Kim Beazley, he'll have a pretty important
part to play and
INTERJECTOR: inaudible
PM: Well that's enough. You see we have a problem in
the Labor Party and so do the Libs, but it's a different
problem. Our problem is the great spread of talent. The
Labor Party is going to be in the very fortunate position
of having to choose, after my humble performance, they
will have to choose and they will have Paul there to
choose then they'll have a great range of talent from
which to choose after that. The Libs have got a
different problem, a paucity of talent.
QUESTION: Prime Minister, I realise you said in your
speech earlier that the $ 8.1B surplus was, in your words,
already used and I noticed that in answer to questions
during the question time that you've been pretty
confident about a 7% aggregate outcome on wages. But I
wonder whether you think there might be some opportunity
for using that surplus to perhaps extend tax cuts as part
of an accord mark 7 if the situation in the Gulf
worsens and oil prices make their way into the CPI and
make life difficult between yourselves and the unions.
PM: Well let me be very precise in answering this
question because I know that if I'm not careful in what I
say that headlines will be there of Hawke promising tax
cuts or something like that. I preface my reply, Gerry,
by saying this; if there's one thing that's characterised
political and economic commentary over the last 7-1/ 2
years it's the continuing pronouncement of the imminent
demise of the accord. No body or institution has been so
continuously sentenced to an imminent death as has the
accord. That began in February of 1983 when it was said
that the accord was simply a stunt to help Hawke win the
election, that he went to the Trades Hall Council in
Melbourne there in the campaign, cooked up the accord and
once he won it would be dead. And from February ' 83
they've continued to announce its imminent demise. The
fact is, as you know, Gerry, very well from your
background that the accord has been a remarkably flexible
instrument and that has been because of two things.
Firstly, we have in this country a remarkably responsible
trade union leadership. Vide these things; one I've
already mentioned, a 10.1% reductionin non farm real
unit labour costs, which has led point two, to the
creation of 1.6 million new jobs, the overwhelming
proportion of them in the private sector and point three
which has led to a more than 50% reduction in industrial
disputes. There is the proof. It's not an opinion,
ladies and gentlemen, there is the proof, the irrefutable
proof of the responsibility of the trade union movement.
That has been matched and has only been possible because
we've had a corresponding responsibility on the part of
the Government. What the essence of the accord and
there's been books and volumes written about it but
it's extremely simple, the concept of the accord. It is
this; that there is a mutual right of those who employ
and those who are employed to improve their real
position. Employers have a legitimate right to seek to
improve their profits with a view to be able to expand
their business and those representing working men and
women have a legitimate right to maintain and through
time to improve their real standards of living. What
follows from that is that the accord says well let's see
what are the most economically responsible ways of
meeting those dual legitimate objectives. There is a
belief on the part of the trade union movement and of the
Government that it makes more sense for the Government,
as far as it can, to pick up a share of meeting that
desire for an improved standard of living through the
social wage so that there will be a lesser impact upon
employers in meeting that aspiration of the workers
through increases in money wages. Now that's the guts,
the very basic principle of the accord. And so it has
worked that the Government, by significant increases in
the social wage which my friends, without being
exhaustive had been reflected in massive increases in
real terms in education. A situation where now after 7-
1/ 2 years of my Government two out of three of our kids
stay on in the education system instead of one in three
when I came to power, massive increases in social welfare
to those most in need at the lower income families. By
those increases in the social wage the trade unions have
been prepared to take a lesser increase in money wages.
That has involved, as I said earlier, this very
substantial transference in national income shares from
wages to profits. The trade unions have been prepared to
accept that because they've had the increase in the
social wage. So that's been the dominant feature which
has allowed us to create 1.6 million new jobs which means
that now Government is able to manage a lowering of
demand without falling over into recession because that
restraint has given a resiliency in the labour market
that under every previous Government had been lacking.
Now you will see the relevance of that background to your
question because we've demonstrated between us, the trade
union movement and the Government, a capacity to adjust
to changing circumstances. Circumstances which on the
one hand have seen a massive decline in the terms of
trade with all the associated problems of macro economic
management that go with that and then the problems that
come-. paradoxically. with-a massive improvement in the
terms of trade. But in our negotiations with the trade
union movement we've dealt with these things. There's
been a number of instruments and methods that we have
used to be adaptable and flexible. Without being
exhaustive then they have meant some preparedness at
times on the part of the trade union movement to delay
the timing of wage increases. Other times there has been
the preparedness to substitute tax cuts, which was the
direct part of your question. There has been a
preparedness to accept tax cuts. So my point in answer
4, 11
to your question is this, Gerry. On the basis of our
record over 7-1/ 2 years looking at both the principle
of the accord and the practice of the accord you are
entitled to expect that the trade union movement and the
Government will be able on the basis of that principle
and that practice to deal with any problem that may
arise. I believe that I'm entitled to the confidence of
the community on the basis of that record.
ends