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TRANSCRIPT OF INTERVIEW WITH GREG CARY RADIO 4BC 13/ 4/ 89.
E 0 E Proof only.
CARY: Good morning Mr Hawke. The question is was* this the
right time to honour the promise?
PM: Well it is the time I said I'd deliver the promise, I ' said
last year 12 months ago that we would deliver tax cuts from
July 1 1989. It's not a question of whether it's the right time,
it's the time I promised, therefore, it is the time it was
delivered. CARY: Yes, even given the promise, if it wasn't economically
the right time I think many would have forgiven you for holding.
back a little.
PM: Well it was the right time, because remember the
circumstances of the delivery of the promise. I said then if we
got a responsible wages outcome during 1988-89, that if restraint
was exercised, and that on the basis of that we could get the
promise of restraint for 1989-90, then we would deliver on 1
July. Now, the first condition was met, the unions exercised
very considerable restraint during 1988-89. . Now at the point
when decisions had to be made about wages outcome for 1989-90 and
the condition of restraint, remarkable restraint for this coming
year, was the delivery of the tax cuts now.. It would have been
the height of economic ( ir) responsibility not to have delivered
because what you would have had then was a wages explosion which
would have destroyed the economy.
CARYs What then is the premise of what the Treasurer delivered
last night? What do you hope or anticipate would be the outcome?
PM: These outcomes. Firstly, I've gone to the major one that is
a responsible wages outcome just let me point out the fact of
history, briefly, that everytime in the past where you've had a
surge of income that's associated with a high level of economic
activity that we'vye got now, you'vye had a wages explosion which
has led to a subsequent very serious recession, stoppage of
growth and explosion of unemployment and prices. Now, on this
occasion, as a result of getting the commitment of the trade
union movement to a very restrained wages outcome in the 12
months ahead, it means that we will have an economy which will
continue to grow, not at the high level of growth we've had in
the last 12 months because a s/ 2
STER
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PM ( cont): I
we can't sustain that in terms of the level of imports, but we'll
still have growth, employment growing, we'll have a downward path
of inflation and we will create the conditions which when we've
brought the level of economic activity down, we will start to be
able to see interest rates coming down. So that's the overall
economic strategy that we've shown that we can deliver. As the
Treasurer said last night the key to the successful conduct of
economic policy is wages policy. The other mob destroyed the
economy because they didn't have a' ' wages policy and had tax cuts
there in 1982 in the context of a wages explosion of about 17%.
You can't carry that, what we've done is to give a wage increase
equivalent in the order of about 12% on average but at a cost of
about six and a half percent to employers.
CARY; Yes, you talk about carrying that heavy load, I guess many
will look to interest rates now and when you say you've delivered
in certain areas I think many well you'd have to concede that
inflation is high and looks to be going higher.
PM: No it's not. The basic rate of inflation will be coming
down. CARY: Well that's a projection.
PM: Yes, but in fact the evidence sustains that proposition
because with a six and a half percent wages outcome in prospect
and taking productivity into account, the assessment of our
advisers as well as our own is that the rate of inflation will be
trending down, but you've got to have this qualification now as a
result of the disastrous floods and I think everyone will
understand we can't control the weather as a result of the
floods you will have fresh fruit and vegetable prices will go up
in the next quarter and that's unfortunate. But you take that
aside and we're entitled to, you have the underlying rate of
inflation will be coming down.
CARYt Can you guarantee a rise in productivity though?
PH: Yes, you see one of the cute little. exercises of these
policy-less mob opposite us, the Howards and the Peacocks, they
say we haven't had high productivity growth figures and they do
that by measuring it against the growth in employment. Now, o~ f
course, if you have a rate of employment growth which is twice as
fast as the rest of the world and four times faster than the
miserable effort they achieved in their seven years in office, of
course if you've got high rates of growth in employment, then
your labour productivity figures don't rise 5o much, but we will
have a productivity performance I think in the next twelve months
of which we will be able to be proud and which will mean that our
growth in exports will continue. The important thing, and I do
hope I can get this
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PM ( cont)
message across to your listeners, is that the secret is not just
getting the growth in exports by becoming more competitive as
we've shown we can do, but at the same time as we get this
increase in exports we've got to make sure that we don't have
imports growing at such a high level. Now, this is where your
listeners can come into it. We can get the right policies in
Canberra and if we can get the co-operation of your listeners and
the Australian public in the way we have with wage restraint, the
way each and every one of your listeners this morning can say now
we' 11 play our part is by using the wage increases that will come
this year and the tax cuts and the increases in family
allowances, if they're. going to save thosethey are going to
spend it, each one of them should say to themselves we're going
to spend those things on Australian-made products. Each one of
your listeners can play a part in getting the outcome that we all
want. CARY: Can they always be guaranteed that the product they're
buying, even if it says Made in Australia, is an Australian
product? Many of our listeners complained that that's not the
case. PM: The way they can do it is by looking at the Australian-made
campaign and looking at the Australian-made logo the green and
gold logo with the Kangaroo and that is only p * rovided to
companies who are part of the officially-endorsed Australianmade
campaign. if you look for the logo you can be sure that
that is an Australian made product.
CARY: I appreciate the point you're making and hopefully many
will do that, but you say if our listeners choose to spend rather
than save the wage rises and tax deductions, history proves
doesn't it that people tend rather to spend the money rather than
save it, would you like them to save the money?
PM; Yes, I like to see some saving in fact the evidence of the
last two years has shown an increase in the saving ratio, that
people have been tending to save more. Now, of course, I'm not
unrealistic, people will want to and need, to spend in many cases
siginificant proportion of the cash in hand they get as a result
of the tax cuts, the increases in family allowances, dependent
allowances and so on, and the wages increases that come. I
acknowledge of course they're going to need to spend, but to the
extent that it's not necessary, Australia's interest would be
served by them saving, but I get back to the point please and
this is a personal plea to every one of your listeners, when you
g0oOut to the shops and do your buying, try as far as you
possibly can to ensure that it's an Australian made product that
you purchase. ./ 4
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CARY: I made the point a little earlier, arnd a couple of
listeners have made a similar point, not so much a point but ask
a question, we're just getting mixed signals it seems to me
anyway, a couple of weeks ago and last week even your saying the
even basic problem was we had an over-heated economy that was
spending too much and as you say a lot of that spending was going
on products from overseas, and yet now we're getting more money
to go out and spend more. I just can't add the two up.
PM: , Well it's a fair question and let me give you the answer.
We've had consumption growing in the last 12 months about 8% t and
we've had production growing about Now the gap between the 4
and the 8 is simply provided by imports. Now there have been
very particular features in the composition of the high level of
demand. investment has been at the highest level for 40 years as
a proportion of our production, highest level for 40 years,
massive investment in terms of hotels, factories, nonresidential
buildings, in plant and equipment. Now we won't get
that element of demand, that sort of increase in demand will not
be reflected in this next financial year. Secondly, there has
been this very big improvement in the terms of trade in the order
of about 12% and that by definition has meant the influx of much
more income into this country because of changes of that order in
the terms of trade. Now what we're getting for our exports
improving relatively to what we ar e paying f or our imports now
that won't be repeated. So those two f actors together plus we
won't get the repetition of the high level of house construction,
all things will mean a lessening, a significant lessening in the
level of demand and it's within that framework that you are going
to be able to accommodate the sort of slight increases in
consumer demand that will be associated with the decisions we
made last night.
CARY: At a time though when you're asking us to save more, why
is there. no incentive there for us to save.
PK4: There is every incentive because I think if people take the
view that you're going to be looking at a long term lowering of
the inflation rate, that's an incentive and I believe that is the
situation. I think also people realise that it is in the
interests of the country to save and as I say in the last couple
of years there has been about a 2% increase in the savings ratio,
and so it is working.
CARY: We did a poll on the show yesterday Prime Minister, or
the day before, talking about banks and these interest rates
going up, and to use the jargon people think there's a giant con
going on somewhere. We had a poll that indicated 98% don't trust
the banks. That doesn't augur well, surely.
PM: -Well in a sense the community can't have it both ways. I
mean there was overwhelming endorsement of what we did in 1983 to
deregulate the financial sector by our actual decisions and also
by bringing in a significantly larger number of banks from
overseas so that the cosy little cartels that the Australian
private banks had before was no longer operative. Now, people
want a deregulated financial sector, it's there and it's now
operating. Let me just make the basic point, however, about the level of
interest rates. As I've said so many times and I want your
listeners to understand it Bob Hawke's not dumb, I might be
some other things but I'm not dumb or stupid and I want the
electorate to be as happy as possible. I know that the
electorate don't like high interest rates, I haven't got interest
rates, and will not have them higher for one day longer than is
absolutely necessary in terms of economic management. You've got
three instruments that you can use to manage the economy, you've
got what we call fiscal policy, Budget and taxes, that's what you
do about the Budget and tamand so on and we've got that as tight
as a drum I mean in terms of our public outlays, what we spend
there's been three successive years of real reductions in what we
spend as a Government and that's what the people want to see;
you've got wages policy as tight as a drum because if we didn't
do what we're doing now you'd have a wagesexplosion of about 16%,
against the 6% we're talking about now. Now that leaves the
third which is monetary policy. We can't have a position where
we just have an economy bubbling away at such a high level that
it's sucking in imports that we can't pay for by our exports. So
you've got to bring down the level of activity a bit by having
high interest rates. * I don't like to have to do it but that's
all that Can be done and as soon as we have the economy coming
down to a better level of equilibrium, at a lower level of
growth, then monetary policy will be eased and interest rates
will come down. The worst thing I could do for your listeners at
the moment though would be to ease monetary policy because we
then would have an explosion which would wreck the economy. 6
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CARYs Yes, I just wonder and again it's been a response of a
lot of our listeners over recent times, as you'd appreciate,
who's looking at the banks? I guess people Just wonder if
interest rates need to be as high as they are at a time when
banks are making record profits. People just wonder why all the
charges have to be implemented at a time when the banks are
making record profits. Are you happy with the way the banks are
operating in general terms?
PM4: Well I think there is a natural enough tendency, not the
one that I approve of, for them always to go a little bit earlier
in terms of raising rates than maybe is absolutely necessary, but
the fact and to be fair is that we are saying if there needs to
be a tight monetary policy that interest rates do need to be high
f or the reasons I've just outlined. That thing that we will be
watching very closely, and this I think is the most important
point, we will be watching very closely to ensure that when the
signal is there for an easing of monetary policy and for rates to
come down, that they move downwards with the same alacrity with
which they have moved upwards.
CARY: yes, we're talking about something that it is very hard to
put timetables upon. But can you give us some kind of projection
when we might expect some kind of easing?
P14: I said in January of this year when asked I didn't
volunteer the question but I was asked in Perth earlier this year
did I think that interest rates would come down before the end
of the year. I said yes. I've got no reason to change that
answer. CARY: An early election totally out of the question?
PM: Yes, absolutely, it's a funny one this. I promised in the
' middle of last year that I'd deliver tax Cuts on July 1, I'm now
being criticised by little Johnny Howard, saying " ooh Mr Hawke' s
going to have an election, fancy him bringing in the cuts now"
What would he have said if I hadn't brought them in when I
promised twelve months ago " Mr Hawke breaks his promise". I mean
with the Howards of this world you can't win, but let me say when
I start winning with John Howard I'll be worried.
CARY: One of the other problems our listeners are having are
with those who aren't paying what they believe to be their
responsible amount of taxation. The Treasurer addressed that to
some end last night. / 7
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PM: Oh yes, we of course have done more than has ever been done
before to make those with the capacity to pay, pay. You remember
that it was Mr Howard's own Royal Commnissioner Costigan who said
that in 1980-81 of the tax system of this country that the tax
avoidance industry was the fastest-growing industry in Australia.
Howard, under his Prime Minister and he had the major
responsibility Howard allowed those with the capacity to pay,
not to pay. Now we have done more to impose upon the rich in
this community the obligation to pay where they weren't paying
before and on companies to pay. Now in regard to this area of
tax havens, we had to make sure in the legislation we bring in
that we get it right, we have and it will mean from next year
that those tax havens will be closed. They will not be able to
be used by companies to avoid their obligations. As their income
accrues they will have to pay their tax here.
CARY: Why has it taken so long though?
Pids It's a very complex issue because you've got to deal with
the distinction between companies who are legitimately operating
actual commercial activities and economic activities in these
countries as against where they are just using these places for
paper purposes, avoidance purposes; and you also have to get also
arrangements and understandings with the countries concerned. it
is recognised around the world as one of the most complex areas
of tax decision-making and you've got to make sure that you get
it right so that you are not going to make decisions which will
act as a disincentive to legitimate economic operations of
Australian enterprises overseas. Because you must understand
that in this whole area of our external accounts problem that the
earning of income overseas legitimately by Australian companies
is something to be encouraged because it is an off-setting factor
to our current account deficit. So you've got to make sure that
the decisions you take which are targeted against people using
these havens just for tax avoidance purposes, are not decisions
which discourage legitimate economic activity by Australian
companies overseas which can be to the benefit of Australia.
CARY: Prime Minister I think it's fair to say that in the run up
to the last election you indicated the worst was behind us.
Things have been crook for the average Australian family, is the
worst behind us now?
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PM: Well I think as far as what we have to do in this country,
that is it is a case it is in other words it is not until
that we've felt that we have been in a position to make the
substantial tax cuts and improvements in family allowances and so
on that we have felt able to make now and to do the things for
pensioners that I know they have welcomed. Now having said that
we have always got to watch what happens overseas I mean if the
world economy were to collapse then we would have to deal with
that situation. But on-the assumption, Greg, which I think is a
fair assumption that the world economy is going to continue to
grow, that we're not facing a world economic recession and
therefore a collapse of our commodity prices, then I think your
observation is a fair one.
CARY: And if you were to leave us with one observation about
last night, if we were to take one thing in conclusion from it,
what would that be?
PM: I think it would be this. The Government has made the
decision to make an increase in disposable income available-to
the Australian people, they've earned it, they deserve it, and I
want and plead with the Australian people, your listeners, to say
now what is it that we can do in those circumstances that's best
for Australia. I repeat the message, to the extent that they are
going to spend what we have now put in their hands, spend it on
Australian made products. That's the message.
CAMY Good to talk to you.
PM: Thank you very much Greg.
ends