Subjects: fuel prices; government spending.
E&OE................................
KNIGHT:
The Prime Minister of Australia, John Howard is with me in the studio. Welcome to the program once again.
PRIME MINISTER:
Good morning Ben. How are you?
KNIGHT:
Not too bad thanks and probably no surprise that we would like to talk to you this morning about fuel prices. Have you filled up the car yourself lately?
PRIME MINISTER:
I'm very conscience of what the price is and I'm as unhappy as anybody else that the price of petrol has gone up a bit, quite a bit in recent weeks. It's gone up because the world price has gone up and it's also gone up in part because the exchange rate relationship between the American and the Australian dollar has changed against us and the world price which is set in American dollars has thereby gone up. Now they are the two overwhelming reasons why the price of fuel has gone up. And I don't control those things. Not even Bill Clinton can do anything about the world price of oil and he's unhappy about it and he's going to raise it with the OPEC countries. But I recognise that that's no balm or answer or whatever to your listeners. I understand that and I'm acutely aware of the sensitivity of this issue but I have to be honest with people and say that the only way the government could cut the price of petrol would be to reduce the federal excise. In order to do that you have to do one of two things. you have to run down the surplus and I think that would be economically foolish because it would put upward pressure on interest rates. Or alternatively you have to take the money out of spending on other programs and I'm not attracted to that either and I don't think the community would be attracted to it. So we're rather stuck at the present time with a very unpalatable situation. And there are plenty of people running around - the motoring organisations, State premiers, the Opposition, they're running around saying it's all wicked and horrible and the government's got to do something. But when it actually comes to the crunch they never [tape break] they will cut the excise and then you work out where the money comes from. Well I have worked out where it would come from and it would either come from the surplus which is quite...to run the surplus down now would be very foolish because although we have a surplus it's not huge. We used some of the surplus for the tax package to give people personal tax cuts. If we ran it down we would put upward pressure on interest rates and I don't want to do anything that puts upwards pressure on interest rates and I don't think the Australian community wants me to do it either. And I don't think people living in rural Australia, country people want me to do that either. So we are in a bind. I acknowledge that. The government's getting criticised. I understand that but I've got to level with people. And I don't have the luxury of sort of calling for something without the responsibility of explaining how it's going to happen.
KNIGHT:
Cutting taxes, cutting the government's fuel excise take is out. But it's probably fair to say that there has been a bit of attention on the way that that tax is being taken out and of course that is currently linked to inflation on the 1st of February and the 1st of August when the inflation figures come out. The tax also goes up. Rather than cutting fuel excise what about preventing those two annual rises in future?
PRIME MINISTER:
Well that's the same because they're built into the budget.
KNIGHT:
They're built into the next 12-month budget?
PRIME MINISTER:
Yes.
KNIGHT:
Beyond that?
PRIME MINISTER:
Well we do it on a, you know, do it on a certain budget. But it is built into the budget. It's built right into the budget.
KNIGHT:
You have sympathy for the idea though?
PRIME MINISTER:
Oh look in isolation I have sympathy for the idea of having lower excise. But you've got to get the money from somewhere.
KNIGHT:
Sure. But in future rather than preventing those two annual excise rises which happen automatically when the CPI figures come out, what about changing so that it's done through the budget so that when the government presents its budget annually if the excise is going to go up you have the explain yourself?
PRIME MINISTER:
Well I don't know that it would produce a different result. I mean look Ben, if you're saying to me in future could we take out automatic indexation, I mean the answer is you can do that, do it quite easily. Take it out in relation to petrol, tobacco and alcohol and that would leave a hole in each budget of some hundreds of millions of dollars and you'd have to find that from somewhere else so you're back to where I was a moment ago. I mean there is no...see if I may say so with respect that sort of question suggests that somehow or other there's an easy painless never previously thought of solution to this and there's not. If there had of been it would have been lighted upon by the government a long time ago. We have built into the budget certain assumptions and if we get more, if we change those assumptions then you've got to replace them with something else. Now I'd like to sort of be talking about something else. I'd be much happier if people weren't understandably concerned about the price of petrol and I feel for them and I know how important a car is to the average Australian. I'm aware of this and I don't like it but I have to in the end accept responsibility for it and also explain why I can't see my way clear to changing the government's position.
KNIGHT:
Isn't responsibility the crux of the way the tax is structured at the moment?
PRIME MINISTER:
Yes it is.
KNIGHT:
At the moment you get two price rises a year, you don't have to explain them, they're automatic.
PRIME MINISTER:
Well I think I'm doing a lot of explaining at the moment.
KNIGHT:
Granted. But if you had to put them through the budget papers, leave excise at what it is at the moment. Let's just say there's nothing we can..
PRIME MINISTER:
What you're saying instead of having a half-yearly indexation you have a...
KNIGHT:
If you want to put the excise up do it through the budget.
PRIME MINISTER:
All right, still that's not going to alter the situation. People will still be paying the price.
KNIGHT:
It might prevent some future price rises.
PRIME MINISTER:
I don't think it will.
KNIGHT:
But it will at least make the government accountable rather..
PRIME MINISTER:
Well the government is accountable. The government's accountable every three years. If people aren't happy they'll vote me out. I mean I understand that.
KNIGHT:
But you are saying this is beyond your control.
PRIME MINISTER:
No I'm not saying that's beyond my control. I haven't said that, that's not right. I didn't say that. I said the increase in the world price and the change in the exchange rate is beyond my control and it is. But the amount of tax imposed by the government is certainly not beyond my control. I can alter that but I can only alter it if I find the money from somewhere and I'm not prepared to run the budget surplus down, and I'm not prepared to take spending out of roads and health and education and defence. Now I don't think any of your listeners want me to take the money out of that either. I mean we are in a jam on this, the community. We don't like the higher prices. The reason they've gone up is beyond our control. We have an opportunity through cutting the excise to bring them down, but that has a price too and that price I think on reflection would be unacceptably high to most Australians. They don't want higher interest rates. They don't want to see the government cut spending in areas like defence and health and education and roads, so we are at the moment in a bit of a jam and I am aware of that and I'm very much aware of it and I wish it were otherwise, but I don't have an easy glib solution. I don't have the luxury of calling for action by others without the responsibility of explaining how that action can be delivered. That's the luxury that belongs to state premiers and motoring organisations and oppositions.
KNIGHT:
The Age has published some figures this morning, which I think showed the difference between what it costs to fill a car at this time and at the same time last year. It looks roughly equivalent to the GST tax cuts. What do you say to the suggestion.
PRIME MINISTER:
Well I have seen a lot of tables, of course I have seen a lot of tables and if the purpose of the table was to demonstrate that the price of petrol has gone up a lot, well they're right, it has gone up a lot and I don't deny it.
KNIGHT:
It looks like you are getting the tax cuts back almost straight away.
PRIME MINISTER:
That's not true because if you hadn't have had the tax cuts, petrol would have still gone up and people would have been much worse off so that is a flawed argument.
KNIGHT:
The other aspect of course of the tax make up of fuel is the goods and services tax. Now the model that you used to ensure that prices would not go up under a GST, was to make some cuts to the excise, but that model has been criticised because it was based on a price of about 77 cents. It's way beyond that now, does that model still work?
PRIME MINISTER:
I thought the thing was based on a higher, on a strike price closer to 90.
KNIGHT:
You may be right.
PRIME MINISTER:
Well in fact, I don't think I may be right, I think I am right.
KNIGHT:
It's still a formula that's been left behind by fuel prices.
PRIME MINISTER:
Well, if they stay at their current level for a sustained period of time, that comment may be right, but you have to look at prices over a longer period of time than just the last few days.
KNIGHT:
So if you take an average the promise has been kept?
PRIME MINISTER:
Well it's too early to make that judgement. But the promise was that we would set the excise figure on a reasonable strike price and the reasonable strike price we struck I think was close to 90 cents a litre and in fact I'm sure it was 90 cents a litre. Now that being the case, I don't think anybody would suggest for a moment we haven't kept our promise in relation to the strike price because we have no way of knowing when you strike something like that, what's going to happen in the future. I mean what happens if the price goes down, supposing the price of petrol were to fall dramatically down to sort of somewhere in the order of 75 cents a litre, the excise reduction will have been struck on the higher strike price of 90 cents a litre, so people would be better off than we originally promised. I don't think any body is going to complain about that. So all you can do in good faith is to adopt an excise figure based on a reasonable strike price and I think that 90 cents a litre was reasonable. In those circumstances, I don't think any body could suggest we haven't kept our commitment in relation to the strike price. In fact, I think we have been very reasonable.
KNIGHT:
12.8 billion dollars, is that from fuel excise for the government?
PRIME MINISTER:
Well it's a lot of money, but governments have a lot of expenses, I mean it really gets back in the end to the argument I said a moment ago and that is that if we are to cut the excise, the money has got to come from somewhere. I mean I can reel off figures of how many millions of dollars a day we spend on defence and on pensions and those things in isolation don't mean a lot, they sound dramatic but they don't mean anything, you have to look at the overall shape of the budget and we have a surplus, it's not a huge surplus and if you take a cut of 5 cents a litre in petrol excise, that's 1.7 billion dollars. You take that out of the budget surplus, you are running it down dangerously and you are putting upward pressure on interest rates and I'm not going to do that because that would be very damaging to farmers, it would be very damaging to small business, it would be very damaging to home borrowers. Our interest rates are a lot lower than they used to be, they've gone up a bit in the last year, that's been regrettable but unavoidable and I don't want to do anything as Prime Minister to contribute to more upward pressure on interest rates and running down the budget surplus would certainly be doing just that.
KNIGHT:
Your 12.8 billion dollars comes from fuel excise and around 2 billion dollars of that goes back to roads, you are making a lot of money, which as you say does.
PRIME MINISTER:
When you say, making money, we're not, we're not making a red cent. That money goes, it all goes into the general pool.
KNIGHT:
Why does it have to come from fuel?
PRIME MINISTER:
Well if it didn't come from fuel, it would come from higher personal tax.
KNIGHT:
Well, why not do that?
PRIME MINISTER:
Well I don't agree with that. I think actually it's a good idea, the present mix of our tax system is much better than it used to be. Having cut personal income tax by 12 billion dollars, I'm not about to increase it, which is really what you are suggesting.
KNIGHT:
Thanks for your time.
[ends]