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MEET THE PRESS

INTERVIEWS WITH US AMBASSADOR TO AUSTRALIA AMBASSADOR TOM SCHIEFFER AND PETER HENDY FROM THE
AUSTRALIAN CHAMBER OF COMMERCE AND INDUSTRY

DISCUSSIONS ABOUT THE STATE OF THE ALLIANCE BETWEEN AMERICA AND AUSTRALIA AND THE BUSINESS WISHLIST
FOR THE HOWARD GOVERNMENT

21st November 2004

PAUL BONGIORNO, MEET THE PRESS PRESENTER:

Hello, and welcome to 'Meet The Press'. Brothers in arms - successful elections behind them, John
Howard and George W. Bush enter into a new phase in the alliance. Today we speak with retiring US
Ambassador Tom Schieffer, and later a business wish list for the Howard Government. But first, what
the nation's press is reporting this Sunday, November 21. In Melbourne, the 'Sunday Age' has "Bush
aims for new global trade talks at the APEC summit." In a meeting with Japan's Prime Minister
Koizumi, both men discuss disarming North Korea of nuclear weapons. Mr Bush says the rogue state
should take seriously the six-party talks aimed at ridding the Korean peninsula of nuclear arms.
The 'Sunday Mail' in Brisbane leads with "Witnesses back bribe accusation." The paper says Federal
Police are sitting on explosive testimony backing claims that Independent MP Tony Windsor was
offered a bribe to vacate his seat. The Sydney 'Sunday Telegraph' reports "Australian sailor in
Bali weapons haul." Christopher Packer of Perth was detained after police found shotguns, pistols
and ammunition on board his vessel. Mr Packer says he forgot to declare the firearms, which he uses
as protection against pirates. And the Melbourne 'Herald Sun Sunday' says "Unions slam Latham
loss." Australia's union leaders are in an unforgiving mood about Labor leader Mark Latham's
election loss. The Prime Minister and President Bush are both attending the Asia-Pacific summit in
Chile. Setting the scene for both men meeting was the final signing off of the trade agreement on
Thursday.

JOHN HOWARD, PRIME MINISTER (from earlier media appearance):

All of these agreements regard - um, involve a degree of give and take, but in the end, because of
the immense goodwill that exists between our two nations and between the Bush Administration and
the Australian Government, it was possible to resolve difficulties and it really does represent a
hugely significant day.

PAUL BONGIORNO:

Well, welcome back to the program, Ambassador.

AMBASSADOR TOM SCHIEFFER, US AMBASSADOR TO AUSTRALIA:

Thanks, Paul. Nice to be here.

PAUL BONGIORNO:

Do those sentiments from John Howard on Thursday pretty well sum up the state of the alliance at
the moment?

AMBASSADOR TOM SCHIEFFER:

I think they do. We have never been closer than we are right now. I think this free trade agreement
that we have just concluded is the most significant thing that we've done in the relationship since
the ANZUS alliance in 1951. It has really far-reaching consequences and it is a huge benefit to
both countries.

PAUL BONGIORNO:

While alliances are obviously built on personal relationships, is there perhaps a perception
problem that it is also bigger than George Bush and John Howard? Would there be any difference if,
for example, we had a Prime Minister Costello or Abbott or maybe, a long way down the track, a
Prime Minister Latham?

AMBASSADOR TOM SCHIEFFER:

I don't think you can downplay the significance of the relationship that the President and John
Howard have developed over this last three, three and a half years. It has really made a big
difference. I think that in truth and fact, had John Howard and George Bush not had that
relationship, we probably wouldn't have concluded the free trade agreement in the rapid time that
we did. Having said that, I think the reason we are so close is because we share so many values
around the world and regardless of who I think would be in the White House or in the Lodge, I think
that relationship would continue.

PAUL BONGIORNO:

On Thursday night, you indicated that any remaining differences over the free trade agreement could
well be resolved at the World Trade Organisation. Is that a signal that perhaps the US isn't all
that happy over the pharmaceuticals, the way they've been dealt with in the agreement, and we could
see that taken to the WTO?

AMBASSADOR TOM SCHIEFFER:

Well, we do have concerns. We've had concerns all along about those amendments, and the concern we
had was not over the Pharmaceutical Benefits Scheme, but over the precedent that it would set to
carve out one particular area for a different treatment. What we have basically said is that we're
going to agree to disagree. The Government has assured us that these amendments were not subsidies
and they would not affect the spirit of the agreement. While we have said that we still have
concerns, we've basically said, "OK, we'll see if it works out as the Government says. If there is
no problem, then nothing else has to be done." If there is a problem that develops, then what we've
said is we will go back to the Government and say, "Can we resolve this on a bilateral basis?" and
if we can't do it there, then we would take it to the World Trade Organisation to have it litigated
there.

PAUL BONGIORNO:

I guess you've heard loud and clear from both sides of politics in Australia that our
Pharmaceutical Benefits Scheme is not up for grabs?

AMBASSADOR TOM SCHIEFFER:

And that was clear in the negotiations. That was the unfortunate thing, I think, about the debate
right before the election. The Pharmaceutical Benefits Scheme was never on the table. The
Government made that very clear from the beginning, and we accepted that position and went on from
there. Somehow it got all tangled up in politics and it became more of a concern, I think, in the
lead-up to the -

PAUL BONGIORNO:

But you're clearly not ruling out that it may be revisited in another forum?

AMBASSADOR TOM SCHIEFFER:

No, I think that's right. We're not ruling that out, but we're also prepared for it to go forward.
We didn't want to hang up the whole agreement on that one thing. We basically said, "OK, we'll take
your word for it, but we reserve our rights to the future."

PAUL BONGIORNO:

At the opening of Parliament last week, you clearly had a warm pull-aside, as they say, with
Labor's Mark Latham, urging him to visit Washington. But your relationship with the Federal
Opposition has been through some rocky passages. Some quotes from you in the 'Bulletin' magazine
last year sparked this outburst from Simon Crean.

SIMON CREAN, OPPOSITION LEADER (earlier media appearance):

He is not allowed to interfere in the domestic political affairs of a country, Kerry. That's off
limits for ambassadors, and he knows it, and that's what he has done in this article. And in the
process the allegation is that Labor is supposed to be anti-American, which I reject.

PAUL BONGIORNO:

Ambassador, do you regret those controversies, or do you believe that your more up-front style is
what is really expected in this day and age from an ambassador?

AMBASSADOR TOM SCHIEFFER:

Well, I regret that some of the coverage and some of the reaction was what it was, but having said
that, what I do here is represent the American Government and I represent American foreign policy.
Now, that is not always met with a warm response. There have obviously been great differences
between the United States and the Labor Party over Iraq, and that was in the lead-up to Iraq, but
that's what I do. I mean, I'm here to represent the American Government and that doesn't mean that
everybody is always going to agree with everything I say and certainly that means that we also
don't have to agree with everything that others say. I think it's just part of the process and I
think that we live in a 24-hour news cycle in which sometimes people expect that they make
assertions or declarations and that they won't have a response. Generally, that's not going to
happen any more in the world we live in.

PAUL BONGIORNO:

I suppose there is a view in Australia and maybe it is a conspiracy theory on the Left, that you
were really signaling to the Australian people what Washington expected them to do?

AMBASSADOR TOM SCHIEFFER:

No, what the Australian people do is their business. We don't have anything to do with that. But we
do have to represent what America is trying to say around the world, and that's no different here
in Australia than it is anywhere else. I mean, there is an American view and people are free to
disagree with that, certainly - that's the democratic process - but I think it would be naive to
expect that an American ambassador wouldn't have a response to criticism of American foreign
policy.

PAUL BONGIORNO:

Time for a break. When we return with the panel, the changing of the guard at the US State
Department and what it could mean for Australia.

PAUL BONGIORNO:

You're on 'Meet The Press' with US Ambassador Tom Schieffer. Welcome to our panel - Michelle
Grattan, 'The Age' and Peter Hartcher, the 'Sydney Morning Herald'. Last week, President Bush
accepted the resignation of his dovish Secretary of State Colin Powell and then appointed his more
hawkish national security adviser Condoleezza Rice to the job.

CONDOLEEZZA RICE, US SECRETARY OF STATE DESIGNATE (from earlier media appearance):

Mr President, it is an honour to be asked to serve your administration and my country once again.
And it is humbling to imagine succeeding my dear friend and mentor Colin Powell.

MICHELLE GRATTAN, 'THE AGE':

Ambassador, do you think that the replacement of Colin Powell and the departure of Richard
Armitage, a very great friend of Australia, will mean significant differences, firstly, in American
foreign policy and, secondly, any differences in the relationship for Australia?

AMBASSADOR TOM SCHIEFFER:

Colin Powell and Richard Armitage were a great team and they have served this country well. I think
that they will be well remembered in history. On a personal note, they have been extremely kind to
me and extremely helpful to me, and I'm going to miss them. Having said that, Condoleezza Rice is
an extraordinary person who has great capacity and great intellect, and I think that she will also
be a wonderful addition to the State Department and be a great Secretary of State. As far as
Australia is concerned, there has been no better friend in America to Australia certainly than
Richard Armitage, and we're all going to miss him in that regard. But the relationship,
particularly over the last three and a half years, has become so deep and so intertwined that I
think that you will see little change in the future. Condoleezza Rice was at the President's side
throughout that whole period of time. She knows how deeply President Bush appreciates what
Australia has done, and I think that she is going to look after the relationship very well.

MICHELLE GRATTAN:

In general, do you think we'll see a more - well, not hawkish foreign policy from America, but a
foreign policy perhaps that is less internally contested, less critics saying, "Hang on, do you
think we should have another look at things?"

AMBASSADOR TOM SCHIEFFER:

I think that some of the business about, "Oh, well, Condoleezza Rice is just in perfect lock-step
with the President's view and this, that and the other, and there will be no dissent in the
administration" - I think that's a failure to recognise just exactly how the President works and
how he develops policy. The President likes to have very strong people with very strong opinions
around him. He likes to have those opinions put on the table, have them debated and some sort of
consensus to arrive out of them. What he doesn't like is to see all of that in the media. I don't
think that any president is different than that. Just because, at the end of the day, the policy is
expressed across the board doesn't mean that it has not been arrived at through debate and
intellectual clash and all the rest of it. And I think that will continue in the future.

PETER HARTCHER, 'THE SYDNEY MORNING HERALD':

Ambassador, some weeks ago we heard the Foreign Minister, Alexander Downer, say that in the event
that push should come to shove in the Taiwan Straits that there should be no assumption that
Australia would automatically come to the side of the US in those circumstances. In an interview in
'The Age' yesterday, the Prime Minister, not specifically on Taiwan but in general, said that if
the United States is involved in some operation elsewhere, and it wanted assistance, it would have
to make a case. Yet, on the other hand, we have the Deputy Secretary of State Rich Armitage on the
record saying that, "An alliance is not something where you can pick and choose. We would expect
Australia, in the event that push came to shove in the Taiwan Straits - we would expect Australia
to help in the dirty, dangerous and difficult work." Are we seeing a mismatch in expectations about
what the alliance - how it would function in the event of difficulty in the Taiwan Straits?

AMBASSADOR TOM SCHIEFFER:

I don't think so, Peter. I think what you have is a lot of different statements from a lot of
different periods of time there and you've put them all together. But I think what this alliance is
about is about consultation. It's about looking at problems, and then it's about discussing them
and coming to some sort of decision as to what we're going to do together about it. I don't think
that that's any different for the future than it has been in the past. We do consult, we do talk
and we do say, "Is this going to have an impact on our respective countries?" Then we both act in
the interests of our own countries. What happens though, is that because of the values we share,
we're so often in the same place on the world stage.

PETER HARTCHER:

Would your preference in the event of, as I say, difficulty in the Taiwan Straits be that Australia
would come to the assistance of the United States?

AMBASSADOR TOM SCHIEFFER:

Well, that's for Australia to decide, but I think that the reason we're together so often is
because we do share those values and we do have an alliance, and I think that that alliance brings
us together more often than it pushes us apart.

PETER HARTCHER:

One of the core values that would be defended in the event of difficulty between Taiwan and China
would be democracy. Would you expect us -

AMBASSADOR TOM SCHIEFFER:

Peter, you're making all these suppositions and you're trying to take me down a road that I am just
not prepared to go to. We don't have a situation in the Taiwan Straits right now that would demand
a military response. We don't have that. Let's wait and see what that would be if and when it would
occur, but the United States is committed to a one-China policy and a peaceful resolution of
whatever differences exist between China and Taiwan. And we are working toward that goal. That's
basically the same goal that the Australians are working toward. And last year when the Premier of
China was in Washington, the President made it very clear that the United States would not welcome
actions on the side of either China or Taiwan that would provoke a conflict there.

MICHELLE GRATTAN:

More generally, though, Ambassador, do you see any circumstances when Australia and the United
States, in a really critical situation, would have divergent interests, where Australia would say
"No" to the United States?

AMBASSADOR TOM SCHIEFFER:

Well, I don't know, Michelle, because you're talking about infinity when you're asking that
question.

MICHELLE GRATTAN:

Well, let's say the next three or four years then?

AMBASSADOR TOM SCHIEFFER:

Well, if there is any circumstance under any scenario in which the United States and Australia
would diverge, of course. We're not in lock-step right now. We have differences over the
International Criminal Court, but that doesn't mean that we're not still allies and that we're not
still friends. But what we do is when we have differences or if we have concerns, we sit down and
try to resolve them and we try to reach consensus. I don't think anything in the future is going to
keep that from happening.

MICHELLE GRATTAN:

John Howard seems to be indicating that perhaps Asia is going to be a bit of a higher priority for
him this term. Do you think there is any realignment of policy going on here on Australia's part?

AMBASSADOR TOM SCHIEFFER:

I don't see it that way. I think that both Australia and the United States recognise how important
Asia is to the future of the world, and stability in Asia is important to the peace of the world.
And one of the great, I think, unrecognised achievements of the Bush Administration is the success
that we have had in Asia. If you look in Japan, for instance, Prime Minister Koizumi says that the
relationship with the United States is better than it's ever been. China, much the same thing.
India and Pakistan, again the same thing. I think that those are great successes. I think what the
Prime Minister is saying is that this is a very, very important part of the world and all of us
need to get it right.

PETER HARTCHER:

On that part of the world and your mention of Japan, the Japanese press and an insider newsletter
in Washington are reporting that Tokyo is where you're heading to next. Should we be expecting you
to be practising your Japanese lessons?

AMBASSADOR TOM SCHIEFFER:

Well, I'll be heading where the President sends me. So until he sends me there, we'll see how it
goes.

PAUL BONGIORNO:

You certainly would have expertise in the Asia Pacific after your stay with us. We're right out of
time, Ambassador Schieffer, so thank you very much for joining us today. All the best for the
future, wherever it takes you.

AMBASSADOR TOM SCHIEFFER:

Thank you, Paul. It's been a pleasure to be here.

PAUL BONGIORNO:

Well, after the break, Peter Hendy of the Australian Chamber of Commerce and Industry. Pryor in the
'Canberra Times' has the cartoon of the week with this take on life for Bronwyn Bishop after her
failed tilt at being Speaker. A frazzled John Howard shakes as Mrs Bishop, looking something like
Madam Lash says, "I'll settle for the Whip."

PAUL BONGIORNO:

You're on 'Meet The Press'. Peter Hendy is Chief Executive of the Australian Chamber of Commerce
and Industry. Welcome to the program, Mr Hendy.

PETER HENDY, AUSTRALIAN CHAMBER OF COMMERCE AND INDUSTRY:

Morning.

PAUL BONGIORNO:

Well, the Howard Government's control of both houses of the Parliament this term has prompted
business to urge it to seize the moment. Last week, the Chamber came up with this wish list:
increase the top tax threshold to $100,000; cut the top income rate to 30%; eliminate bracket
creep; phase out payroll tax; re-introduce 15% rebate on savings; cut capital gains tax; abolish
superannuation taxes.

PETER HARTCHER:

So, obviously, Mr Hendy, this wish list would be a multibillion-dollar request of the Federal
Government. Your blueprint also sets out the principle of efficiency and, if I may quote, "that
commercial decisions must not be skewed by tax considerations." So, in terms of helping to meet the
cost of your wish list and also observing that principle of not skewing business decisions with tax
considerations, what corporate welfare measures would you suggest be cut?

PETER HENDY:

Well, what we're principally talking about here is tax reform that will benefit the economy, will
boost productivity and result in a stronger, wealthier economy, and that's how most of the tax will
be paid for into the future. Obviously, we'll need to look through the budget, to look at
expenditure cuts and, of course, where there is corporate welfare, we as a body aren't particularly
happy with corporate welfare when it's wasted government expenditure, but most of the benefit comes
from productivity boosts. You will have a lower tax rate as a proportion of GDP, but the tax take
will be bigger in the sense to pay for infrastructure for hospitals and things like that that we
need in this country because the economy will be so much bigger.

PETER HARTCHER:

So you are down on corporate welfare. Can you give us some examples of some measures you would like
to see revoked?

PETER HENDY:

Well, no, I think that's the next step. In fact, we just had the AGM of the Chamber and one of the
things that was put on the agenda for 2005 was to look at the budget, look at the level of
government expenditure. Government expenditure at the federal level has been running at 22% of GDP
for the last few years and it is projected to continue at that level into the future. We think 22%
of GDP is too high and we agree that it should be cut and we will be looking, as a priority, at
expenditure issues into next year.

MICHELLE GRATTAN:

You've suggested aligning the top personal income tax rate and the business tax rate, the company
tax rate. What is the problem of the distortions at the moment when those two rates are very much
out of kilter? How much do you think that is costing the economy, if you like?

PETER HENDY:

Well, we haven't estimated the exact costs, but there is a distortionary cost, structuring tax
minimisation that goes on, that is a deadweight loss to the economy. But why we are proposing such
radical changes to the personal tax system? It's because there is a number of real pressure points
on the economy into the future - an aging population, major skills shortages developing, and we've
got some 1 million Australians living overseas, living and working overseas. We want to stop people
going overseas with their skills and staying in Australia. We want those who are overseas to come
back to Australia, so we need a competitive personal tax regime in this country to meet the skills
shortages we have in this country.

MICHELLE GRATTAN:

But don't you think that you're a bit vulnerable to arguments of equity here?

PETER HENDY:

Well, equity is an issue, but the fact is that you've got to look at the totality of what we're
proposing. For example, we're proposing that bracket creep be eliminated. That helps people right
down to the bottom tax brackets. We think bracket creep should be eliminated by indexing the tax
brackets to the inflation rate. That would be a significant structural reform to the personal tax
system which would benefit people right down the income scale.

PETER HARTCHER:

On your point about the personal tax rate for upper income earners, one party during the election
campaign did suggest offering tax relief to people earning over $80,000. That was the Labor Party.
Did you endorse that position during the campaign?

PETER HENDY:

Well, that's - we did, in fact. And in fact, it is the same top tax schedule that the Government
introduced into the budget in May. Our view is that - that was a tax schedule similar to what was
proposed back in 1999/2000 when the GST was introduced. If you'd indexed that to the inflation rate
it would be something like $100,000 now and that's where that $100,000 top threshold that we
proposed comes from. It is an issue about bracket creep. And, as I say, a major structural change
would be to abolish bracket creep. Neither major political party has adopted that proposal, and we
think it is incumbent on them to do so.

PETER HARTCHER:

Why did you wait until now when the great arguments were being had about tax policy during the
election campaign? Why did you produce your tax blueprint only after the debate was over?

PETER HENDY:

Well, most of the proposals that we've put out have been put out through the course of the year.
We've left the launch of the total package till after the election because you have to have clean
air to discuss these issues. Now, as it is, we launched it on the first day of the parliamentary
sitting of a three-year parliamentary term. We think that that's a perfect time to approach
Government, to approach Opposition, to get them to think about tax. All through the election
campaign and before it, we were telling the Opposition and we were telling the Government that when
we did our pre-election survey, tax was the major issue that business was concerned with. It's not
that we've been silent, it's more that we're getting a bit of media coverage now.

PAUL BONGIORNO:

Mr Hendy, just before we go, in a major speech this weekend, Opposition Leader Mark Latham says
that Labor should be looking more at small business, contractors, franchisees as its constituency,
look at their problems, as it were. Do you welcome this approach from the Labor leader?

PETER HENDY:

Oh, well, we certainly do, and what we'll be concerned about is to see that translated specially
into their industrial relations policy. That is where they really failed in the lead-up to the last
election, and small business will be wanting to see reform of their industrial relations policy.

PAUL BONGIORNO:

Thank you very much for joining us today, Peter Hendy from the Australian Chamber of Commerce and
Industry. And thanks to our panel, Michelle Grattan and Peter Hartcher. Until next week, it's
goodbye from 'Meet The Press'.