~/ YJ
PRIME MINISTER
TRANSCRIPT OF THE PRIME MINISTER, THE HON P J KEATING MP
INTERVIEW WITH JOHN STANLEY, 2UE
31 JANUARY 1995
J: Good afternoon.
PM: How are you John?
J: Very good. This is the beginning of ' 95 for you. You have a new
Opposition Leader, we'll discuss that in a moment, but this afternoon
the Treasurer has confirmed you will be increasing taxes in the May
Budget. Isn't that going to make your task of winning the election that
much harder?
PM: What he confirmed is we will tighten policy and he said this for this
reason. He's also published a set of forecasts and what they show is
that in the Budget, at the time of the Budget last year, we forecast
growth in the economy at four and a half per cent. We are now
forecasting five and a half. We were forecasting business investment
at fourteen and a half per cent, we are now forecasting twenty-four.
We were forecasting two per cent inflation, we are forecasting two and
a quarter, about the same, and on unemployment we were forecasting
nine and a half, we are now forecasting eight and a half. So five and a
half per cent for growth, twenty-four per cent for business investment
and eight and a half per cent for unemployment and 450,000 jobs
since the election. We want to keep that going.
J: What about the current account deficit?
PM: The current account deficit is rising because we are in a very strong
investment phase. In any investment phase, Australia always imports
producer goods. We don't make digitally operated machine tools. We
don't make mainframe computers. These things come in at rises. But
the thing is, this country is the fastest growing, western OECD style
economy with low inflation. Five and a half per cent growth and two
per cent inflation we've never had any year that good, I don't think
since the war.
J: We haven't had a year with a current account deficit of 26 million...
PM: The Government was re-elected to produce growth in employment.
We've had now just on half a million jobs since the election. It must be
the fastest rate of employment growth in the OECD area of the western
world. Let me just say this. I think without a doubt the best economic
year for Australia since the war. What we will do is keep that going.
So what the Treasurer announced today is how we keep that going
and that means we've got to make sure that that current account deficit
you speak of comes from a paucity of our savings, so we want the
public sector to save some more by getting the Budget back into
surplus earlier.
J: Yes, so you will be doing that in a couple of years' time, but will you be
doing it by raising taxes?
PM: Well, as in all Budgets, you can do it by changes in taxes, changes in
outlays or changes in the asset position of the Commonwealth. We
will be examining that in the way that the Government has done since
1983.
J: So you are not ruling out any of those three selling off Government
assets, raising taxes and cutting Government spending?
PM: No, but let me just make this point because I heard on your news
service somebody saying, I think it was Mr Costello, well this is a big
tax-munching Government. This is the lowest taxing Government in
the western world. This is the lowest taxed country, outside of Turkey
which is not as developed as this country is, this is the lowest taxed,
developed country in the western world and we gave tax cuts as we
promised in the election at the end of 1993. So I think people have got
to understand and balance this off if they want to keep that job security
when they see those job numbers coming out strongly and
unemployment coming down. If they want to see the pick up in
business profits and the general prosperity in the economy with huge
rates of productivity growth and low inflation, you've got to run the
place sensibly and I like to think we can do that.
J: And running the place sensibly then means ratcheting up the tax rate a
little bit from that...
PM: Well I can't say what we will do precisely on tax, it's just too early, but
the Budget will be down in May and the Government will consider its
position between now and then.
J: Can you rule out increases in personal income tax rates?
PM: Well I'm not ruling out anything except to say have a look at our record
in these things and it's been pretty strong. I mean we'ye delivered on
every tax commitment we've made since 1983. 1 had Mr Howard
running around telling us about broken promises and how I can't be
believed, when Treasurer in 1977 he introduced a tax cut, I don't think
you can remember it John, ring up and find out...
J: I do remember it the fistful of dollars but then you...
PM: Just remember, ring up and find out how much your tax cut will be and
then they took it away five months later.
J: And yet you said your tax cuts were L-A-W law.
PM: Yes, and they were, they were paid.
J: But you didn't deliver all of them did you? The second lot's still to
come.
PM: We paid the first half early and we put the second half back.
J: So when are they going to come in?
PM: The Government will consider that as well in the Budget round.
J: But isn't that a credibility problem...
PM: No not at all.
J possibility of increasing taxes, and you still haven't delivered that tax
cut.
PM: No, we delivered the tax cuts in December 1993 as promised. In fact
we delivered them earlier as I said and we've put the second round
back. But again, we were forecasting the Budget at four and a half per
cent growth. We're actually doing better, we're doing five and a half.
Now, what all thinking Australians will say, well look we're doing now
even better than we expected, what should we do now to preserve
that? How do we keep that going? And that means that we have got
to make sure that the demand and the savings equation the economy
sets us up for the rest of the ' 90s so that all of us and all of our kids get
a chance at a job and good strong growth.
J: Do you acknowledge that in the broad community today and possibly
because of your efforts over the last decade, there's more of an
understanding of the economy and people understand that if the
budget deficit isn't cut back, if public spending isn't pared back, that
they may have to pay higher interest rates?
PM: Well I think we've seen three monetary adjustments last year, three
interest rate adjustments last year, I think people have got to say this
is a premium I pay for my job security, for the employment growth we're
seeing, for the phenomenal rates of economic growth and for the pick
up in company profits which is underpinning our big investment phase
for the future. It's a bit like paying the insurance on your house. You
can take the risk that it won't burn down, but you're awfully sorry after
the event if it does and you're not insured.
J: Could you expand on that because a few people I've heard on this
station, on open line calls, they say, " Why is it good for the economy
that we should have to pay say, sixty dollars a month more on our
mortgage rate?" How is it directly helping them?
PK: Let me say this, John, housing interest rates fell dramatically over the
last, say, three years, by sixty or eighty dollars or more in some
cases, like for a $ 60,000 or $ 70,000 dollar mortgage, by $ 120 a week.
Those low interest rates reflected the low activity in the economy and
the low premium in the interest rate market, if you like, of that low
activity. Once the game started to get stronger and there was more
demand out there, what that does is take away some of the spending
capacity in the economy. If we don't take it away, we can't sustain the
growth, we can't sustain the employment growth and so the certainty
that people are looking for... I think Australians are very mature about
these things they say look, we re-hired the government in 1993 to
give us growth back and strong employment. The government has
done more than it could even reasonably be expected to do, with that.
Now, they know that you just can't have that sort of strong growth and
employment growth and have growth in the current account deficit
etcetera, without some tempering of the pace. And, what the interest
rates do is simply temper the pace.
J: Well, you described it, I think, as a premium that they have to pay for
all of these...
PK: Well, for economic security, growth, employment....
J: So, to get all of that people may have to pay higher interest rates and
pay higher taxes in the short term?
PK: Well, they've already paid some of the higher interest rates but, can I
just say this, that the big fear 18 months ago was that your job was at
risk, alternatively you might have been unemployed or, at best, your
job was at risk. You've now got the security of knowing that that is not
true, that your job is much more secure. And, this is part of the
premium on that security. I
J: So, those people, therefore, you're asking them, look you're going to
have to pay, perhaps is the word ' premium' perhaps a replacement
for the old, ' you have to tighten your belt a bit more to gain the
benefit'?
PK: Well, just look at the substantial growth in real incomes. When you
get a wage increase, and we've seen wages running at about three
and a half to four per cent this year and in some cases, because of
the previous year, six per cent and you end up with two per cent
inflation, you end up with three to four per cent real growth in income.
Let me explain this to you... if you had wages at four per cent and
inflation at four per cent your real income growth is zero. But, if you've
got wages at four per cent and inflation at two per cent or inflation at
one per cent or inflation at nearly zero which is what we had for
most of the last year you've got a four per cent real increase in
income. Couple that with the reduced interest rates over the last three
years for housing, we had a huge increase in real income, for
households. And, that has now reflected itself in a big splurge in
spending.
J: So what you're saying is they've got to pull back a bit?
PK: Pull back a bit..
J: Through interest rates or tax rises?
PK: Whatever it is, but it pulls it back a bit. But, what is the purpose in
pulling it back? The good purpose in pulling it back is to sustain it
right through the nineties.
J: The bottom line, I could use a tabloid way of putting it, you're going to
have to take a little bit of money out of people's pockets for the longer
term benefit?
PK: Well, after having put a fair bit in. That's the point. Where did the
income growth over the past couple of years come from? It came from
a tremendous result in inflation which meant that the wages growth
ended up being real wages growth. It wasn't eaten away by inflation.
The second thing is it came from reduced interest rates and it came
from the tax cuts of 1993. If you put the three of those things together
you've got a lot of income. Now, the government has given a lot of
additional income to the community in the last three years. What is
happening now, to sustain this growth and employment growth and
security some of that is coming back.
J: It is a hard message to put to people though, to say, look, your income
has got to be pared back a bit.
PK: But, how would they like to be living in Europe where the rates of
growth are one and a half per cent, not five and a half; where there is
not three per cent or three and a half per cent employment growth but
three quarters of a per cent; where their job has the sword of
Damocles hanging over it, perpetually? How would people like that
alternative? And, by the way, that's the sort of alternative that the
Liberal Party have got... Low growth, jack up the interest rates, hold
down the growth, don't have a wages policy, don't talk to the unions...
Labour market reform, cutting real wages, that's the alternative.
J: The foreign debt though, $ 180 billion dollars, we've got $ 26 billion
coming up in the next financial year, are we ever going to be able to
even stabilise it, let alone?
PK: There is only one way for us to get out of our foreign debt, that is,
invest our way out by increasing the capital stock that's plant and
equipment, productive capacity and saving more. But, why are
Australian private savings relatively low? Why does the government
have to increase the Budget surplus? The answer is, to make up for
the paucity of private savings. And why are private savings low?
Because two decades of double digit inflation taught people not to
leave their money in the bank. And, John Howard who has now been
anointed as the new Liberal leader is responsible for nearly one
decade of that high inflation.
J: But, you've been there for nearly 13 years...
PK: Oh yes, but have a look at the inflation rate, it's two per cent.
J: And, what about the savings, though, we've got foreign debt at $ 180
billion dollars?
PK: The thing is, we broke the back of inflation in 1989-90 after five or six
years of wrestling with it and you can't say to a community of 18 million
people, " Look all of your lifetime experience is that if you put your
money in the bank it will go down in value particularly in after tax
terms we've had, now, three years of really good inflation
performance so change your saving habits". People take a while to
change.
J: So, when is it going to happen, when are we going to see the change
in saving habits?
PK: I think you will see it. You can see it now, you've got real income
growth, you've got modest wage growth and you've got that becoming
real wage growth because of low inflation.
J: OK, can I turn to Mr Howard and can I put it to you that there is no one
who you would less like to hand over the Prime Ministership to than
John Howard?
PK: Well, I spent ten years of my life cleaning up after him, ten years of
cleaning up his mess. He left me as Treasurer and as Prime Minister,
an industrial graveyard closed factories, ten per cent
unemployment, eleven per cent inflation, smashed profits, low
employment. That was the legacy of John Howard.
J: If he was here, he'd hit back with your recession.
PK: No, no, let me just say about, if you put my recession, for a start, we
are out of it and growing firmly. John Howard never had, at any time
he was in government, growth at five and a half per cent and two per
cent inflation. Never. Not ever. The best he could ever do was about
two and a half per cent growth and ten per cent inflation. So, he was a
weak Treasurer, and as Leader of the Opposition, when he got down
to that 13% bottom approval rating he demonstrated in losing the
1987 election that he was a weak leader. Now, whatever you think
about this country, it has changed completely as a result of this
Government's tenure of office this is an outward looking, confident,
engaged, international, low inflation, high productivity competitive
economy. What John Howard left behind was an inward looking, tariff
enclosed, regulated, high unemployment, high inflation country.
J: But, you know that many of the policies that you undertook as
Treasurer, he would have undertaken as Treasurer if he had still been
there?
PM: Look, he couldn't beat time in the Cabinet room. John Hewson wrote
those stories this little myth goes around. This is a bloke who was
Treasurer for 5 years, and who let me give you an example, last
night he said this on the 7.30 Report, about the republic, he said, " If
you want to know how I would vote in 5 years time, ask me in 5 years
time. If I can be persuaded, and the Australian community be
persuaded that a republic would benefit Australia, that is something
that deserves support". In other words, if muggins me if Keating
gets out there and really leads and convinces me and the Australian
community that we should be a republic, then maybe I will support it.
Just like, if Keating floats the dollar, de-regulates the financial markets,
knocks over the tariff wall, makes the leap into Asia, introduces best
practice, lifts the participation rate in schools, then I might support him.
I mean, this Government has done all the hard work, and if the public
of this country want to continue the great change of Australia, well,
they keep to the authors of the policy.
J: If you look at John Howard's record, that was 13 years ago you would
have to acknowledge
PM: He left the leadership in 1989.
J: You would have to acknowledge though, that he has been the driving
force behind many of the changes to industrial relations in Australia?
PM: And, what is his policy? What is his policy on Industrial Relations?
What is his policy?
J: A lot of his policies of 10 years ago are now adopted by your
Government....
PM: No, they're not. When he talks about wage flexibility, he is talking
about cutting the wages of people under $ 35,000. That is what it
means. It is code for cutting the wages of the low paid and middle paid
people. That is what it means. And, I will just remind you of what
President Bill Clinton said in his State of the Union Address in the
American Congress about a week ago he said " There is an army of
American working poor who haven't had a real wage increase in 17
years" now, I just told you that in this country people have had a 4%
real wage increase over the last year that is ( in America) because of
the sort of policy that John Howard believes in, no adequate safety net,
and you take the contract and go home, or you go home empty
handed.
J: And, yet, he said yesterday he believes in a safety-net, he outlines his
policies....
PM: He has opposed every wage increase since 1983. All those increases
which came through the centralised wage system he opposed. He
says he believes in families, but he doesn't believe in family support.
He doesn't believe in help for the unemployed they thought the
money that we spent in Working Nation on getting the
unemployed.... when I said that we won't leave the unemployed behind,
we dragged them up behind us, we would include them in this huge
growth and employment, when I introduced last year the Working
Nation White Paper and Statement, the Liberal Party said it was an
extravagance we were spending money.
J: But, isn't there a danger for you in looking at his past record, talking
about what he has done in the past, instead of joining the battle now in
the....
PM: ( inaudible)... but you asked me John Howard is a known quantity.
The Liberal Party he is their 3rd preference. They had a chance, in
this Parliament, to say " Look, John Hewson lost the election, so we will
take John Howard back", and they said " no, no we're not having
Howard", so they gave it to Hewson. He fell over, and they said, " Well,
Hewson has gone maybe we should have Howard?", and they said,
" No, no we are not having Howard, we're having Downer". As the
Liberal Party's third choice they want it to be the country's first
choice....
J: But, are you going to sit here with a straight face, and look at me now,
and tell me that you find Alexander Downer a more potent opponent
than John Howard? John Howard is surely a more difficult opponent
for you than Alexander Downer?
PM: Don't ask me what I think why did the Liberal Party pass over him 3
times? I just say this to people: All this stuff about colour pictures of
everyone in harmony on the front, this is the guy that said a couple of
weeks ago he'd pole-axe his leader right at the last minute, he said
you swear support for the leader and when he's dead you tell him you
pole-axed him. I mean he did this to Downer...
J: But that doesn't that make him a more dangerous opponent...
PM: How long ago was it they brought us the dream team? Downer and
Costello. The dream team. And before that the Messiah, Dr Hewson.
You can't take that sort of media pap in, seriously.
J: I'm not asking the media, I'm asking one of the most experienced
politicians in the country...
PM: I'm telling you...
J: Who's the tougher opponent out of Downer and Howard?
PM: John, I take them as they come. You see, remember all this debate
about early elections? All this last year, Keating's going to have an
early election. Keating was never having an early election.
J: All this tricky stuff he's going to slip in while Downer's in trouble.
PM: The public deserve an even break to make good judgements at
elections and I didn't do anything tricky so I take them without
manipulation, I take them as they come. Hewson, Downer, Howard...
the media are now feeling a bit poorly about themselves because they
thought they were a bit hard on Alex, has decided now they will give
John a free ride. All leaders get a free ride for a while, but the thing
about John Howard, he's a known quantity, and what we know is he
was a weak Treasurer, he couldn't get anything through his Cabinet,
he left us with a moribund inward-looking economy and he was a weak
leader who lost an election and ended up at thirteen per cent.
J: This is the final question. He says he's made mistakes, you've made
mistakes, he's prepared to admit his.
PM: I've admitted heaps of them, I've admitted to many mistakes.
J: Could we have a couple of them?
PM: Well, one was we tightened up too hard in 1988/ 89, I've said that
plenty of times. But you see, John Howard wants the epitaph of
" Honest John" yet he will always use a distortion every day of the week
to suit himself.
J: We go back to ' 88/ 89, people said you tightened up too hard because
you left tightening up too late. Isn't the concern now that you've done
exactly the same thing...
PM: I think the charge against us at the moment has been we've tightened
up too early but I think the numbers today reveal that that's not right.
We've just about got this, I think, reasonably right. I mean the criticism
last year was that the interest rate adjustments were too early. But I
think if you look at today's forecasts, I think we've got them pretty right.
J: All right. Paul Keating, we've run out of time, thank you.
PM: Thankyou John.
ends.