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National Press Club -

View in ParlView

When the Treasurer rose in the Parliament to deliver the Budget last Tuesday, he put the final seal on Mr Keating's tax fraud of the last election.

At the last election, Mr Keating entered into a compact with the Australian people to deliver them tax cuts if they delivered him office. He has taken his side of the bargain. They are locked out of theirs. No doubt he thinks that being nailed for fraud after the event is a small price :- he still gets to keep the three-year term of government. The Australian public was defrauded.

Mr Keating is a tax cheat.

But the object of this year's Budget is not just to consummate past tax fraud. It is to set up a repeat performance. If the Government wants to make tax promises now for the future - in ever-increasing time frames out into the future - the worth of past promises must be the yardstick to assess future credibility. As we now know, it is no use complaining after the election.

Mr Keating is like a used car salesman with a history of dodgy sales. Now he is going for one last try.

What the Australian public was sold before the last election were legislated L-A-W tax cuts to commence on 1 January, worth $1.8 billion for the first half year, and over $4 billion per full year each year after that. What the Australian public was sold before the last election was a corporate tax rate of 33 cents and all without a GST. As Mr Keating said: "What I am promising is not to put up tax."

The product delivered was increased taxes of:-

Petroleum and other levies 1.5

Wholesale sales tax increases

(including cars $330 m) 2.1

Company tax 33c to 36c 1.1

Abolished income tax cuts 4.3

9.0 billion each year

The difference between the price at the time of the election and the price as delivered is $9 billion per year every year.

Now on Budget night, Mr Keating held out the prospect of paying $1 billion of those taxes back in 1998-9, rising to $4.5 billion in 2001-2. If all Parliaments ran their full term (and they don't, and with early election speculation even this one probably won't) this is a promise for a paltry reimbursement in the last year of the next Parliament and a partial reimbursement in the last year of the Parliament after that.

By any reckoning, Mr Keating will be either an antique dealer in Paris or an architecture consultant in Berlin by that time.

But come back to the yardstick. If Mr Keating did not deliver in this Parliament what he legislated in the last one, who could possibly believe he will deliver in future Parliaments, what he is promising now?

On Tuesday night Mr Keating broke faith on a compact made 3 years in past, and asked the Australian people to trust him on a compact 6 years into the future!

And what is the compact? The compact is to pay back in the year 2002 half of the tax he takes each year, between now and then.

But as if that isn't enough, Mr Keating, the morning after the Budget, decided to dress up the proposal by saying that this could deliver a retirement sum of $460,000. What could deliver such a sum is the earnings on 40 years of an employer paying 9% of wages, the employee paying 3% of wages and the government contributing 3% - one-fifth of overall contributions to an investment fund. The Government contribution is, of course, but a partial return of the employee's own taxes, representing only half of the additional amount raised. And who would benefit from such a sum? People 18 years or under. To achieve this sum you have to enter the workforce at 25, in seven years' time, and have your first year of retirement in 2042.

As Mr Keating said on AM Program (10 May 1995): "What do you mean it's true. It is fantastic."

Mr Keating may have chosen his words carefully. The Shorter Oxford Dictionary defines "fantastic" as: "1. Existing only in imagination, unreal."

A surreal attitude is now creeping into Australian politics. The Prime Minister has junked his promises of two years ago and is now making promises for the year 2042! Mr Keating lives by the maxim that if you can't keep short term promises, distract the public with longer ones instead.

Now let us come back to earth.

No person retiring between now and 2002 - 7 years' time - who would otherwise have had the benefit of income tax cuts starting on 1 January, receives the full benefit of these promises. And let us be clear. This is a promise to pay tax cuts only for those taking income cuts. You only get the tax relief by foregoing wages or salary.

Any one retiring between now and 2002 does not receive the value of the L-A-W tax cuts. For the self-funded retiree or others deriving income from investment over $20,700, there is nothing. Let us be clear about this. This is a proposal to belt the self-funded retiree.

Tax Rises

The nature of the Government's income tax fraud is monumental. As the Budget Papers show, in real terms, the revenue take under this Budget increases by 8.9% in real terms. The tax take increases 9.3% in real terms.

This increase in revenue is nearly double the increase under the Dawkins horror Budget of '93-94. Nearly every one of Mr Keating's new taxes is a broken promise.

For the first time sales tax will apply to screws, nails, paint, wallpaper, tiles, taps, nozzles, and kitchen cupboards, increasing tax from zero to 12%. This will lift the cost of every renovation, extension or new house. Estimates vary, but the Master Builders' Association says the increased cost will be $1,000 on an average new house.

Sales tax on motor cars will increase by 6% adding $1,000 to the cost of a new car.

Company tax will increase from 33 cents to 36 cents, a double whammy with accelerated payment schedules, which will mean that smaller companies will have to lift prices.

The Medicare levy will increase from 1.4% to 1.5% in violation of assurances from Health Minister Lawrence. The worst aspect of this increase, however, is that it will do nothing to arrest the flight from private insurance. In fact, in all likelihood it will hasten it.

Other tax rises would take me too long to enumerate.

The position of the Coalition is clear. We will vote against tax lies.

Each new tax which is a violation of Mr Keating's election mandate will be opposed by us. Other parties, some of whom once claimed their role was to keep Government honest, can explain why they propose to help Mr Keating in his dishonesty. We will vote to make him keep his election mandate.

It is the Coalition and the Coalition alone that intends to keep Mr Keating honest on this Budget.

What is more, the Coalition will not introduce new taxes if elected at the next election.

I call on Mr Keating to make a similar commitment.

The onus is now on Mr Keating. He has stolen away income tax cuts, increased petrol excise, increased sales tax, and now he has a new tax on the family home. Does he regard this as enough? If so, he will now give a commitment not to increase taxes further if re-elected. Or does he want more? The last time he legislated to cut taxes he defaulted by $9 billion per annum. If he refuses to rule out increasing taxes, you can write your own value on his secret tax agenda. It starts at $9 billion and it works up from there.

Superannuation

On Budget night the 'notional' Budget surplus did not surprise me, I had predicted that. The sale of the Commonwealth Bank did not surprise me. John Howard had predicted that.

What surprised me was the Government's approach to superannuation. The levy on employers is implemented by legislation. I expected the levy on employees to be implemented by legislation. It is not to be, however. It is to be negotiated on an award basis, even though the Government admits this is likely to extend coverage to only 74% of employees, rather than the 87% covered by the SGC.

The object of this is clear. On the one hand it is to ensure the primacy of unions. Unions want this to be a selling point, "you won't have super except from us" even if it is in fact a deduction from salary. Extending contributions under awards will also allow unions to retain primacy over the identity of the fund to which contributions are made, which is their real interest. Secondly, the object is to allow this to be factored into wage claims. Wage claims will be presumed to cover the 1% to achieve Government policy and work up from that basis.

But the centrepiece of this Budget was to be savings. Savings runs a poor second to the agenda which really interests the Government- preserving a role for unions which are rapidly declining in terms of membership. The Savings statement estimates the Government's matching tax cut for income-foregone contributes a 1% increase in savings by 2005. It never rises above 1.7% (in the year 2020). Given that national savings are around 17% of GDP and the FitzGerald report recommended a rise in national savings of 5% the efficacy of this as a savings measure is all too apparent :- very little very late.

Savings is really a footnote to industrial relations policy in this Budget.

The Bottom Line of the Budget

The bottom line of the 1995-96 Budget was fudged with asset sales, and there is little reason to believe the Government will meet its targets. The Government's past performance rate in achieving its budgeted asset sales targets has been abysmal. Since 1987- 88, the Government has written projected receipts of $11 billion into the bottom line of its budget and achieved only $5.8 billion. A 53 per cent strike rate! In this Budget, ie Government plans to increase proceeds from asset sales of $55 million last year, to almost $5.4 billion next year. The proceeds of the Qantas sale will appear for the fourth time!

The Budget papers do not show the expected percentage increase from 1994-95 to 1999 96. There was just an "n-a", which I assume stands for "not applicable". The Government has printed percentage increases in the past. The Department of Finance can calculate percentages. I suppose the Government was too embarrassed to include it!

The percentage increase in receipts of assets sales next year is 9,627%. Herein lies the basis for the notional surplus!

Asset sales do nothing to boost national savings. They are simply a transfer of ownership from the public to the private sector. They do nothing to take the pressure off short term interest rates.

The Coalition wants asset sales - not to fudge the Budget - but to produce greater efficiency and benefits to consumers. In the long run, the higher national income flowing from more productive use of assets is likely to boost national savings, but that is not the point Mr Willis is trying to make. Mr Willis is trying to make a balance day transaction to fool the public.

If the Government wants to take pressure off interest rates now, it must reduce government borrowing in ways which do not lead to an offsetting increase in private borrowing. The Government has decided to raise taxes, but this is, of course accompanied by the damaging effect of taxes on economic activity. In turn this will work against higher national savings. On top of that, higher taxes on business and consumers are likely to be paid for in part by lower private sector saving.

Asset sales are classified in the Budget as negative outlays or expenditure reductions, enabling the Government to create an impression of fiscal rectitude and temporarily fill Budget holes without actually making any real decisions to cut outlays and without making any real contribution to tackling the foreign debt mess Labor has inflicted on Australia.

Asset sales are counterproductive if used simply to fund on-going government consumption expenditure, rather than debt reduction or capital investment.

Since there were no significant asset sales in the 1970s or early 1980s, the Government's increasing reliance on asset sales means that historical figures on outlays under-state the increase in spending over recent decades.

We now have a situation where Government policy on asset sales is driven not by concern about efficiency in public enterprises, but simply by a squalid scramble for funds motivated by little more than accounting conventions. A good example is the plan to sell, then lease-back, DASFLEET, whilst leaving employees on the public payroll. In reality this is a proposal to bring forward a capital sum (thought to be $400 million) and pay for it by increasing outlays down the years in the form of lease-back payments, with no contribution to efficiency. It is, simply, a balance-day transaction.

It may even be worse. The Budget makes no provision for lease-back payments as outlays. The Government has accounted for the proceeds of the sale but not the cost of the lease-back.

Asset sales are not the only items producing misleading outlays figures. Two other significant factors are State debt and changes in payments to the Sates. In the 1970s, Commonwealth borrowings advanced to the States were added to outlays. At present, the States are repaying these advances to the Commonwealth. These are classified as negative outlays or reductions in outlays. Historical tables show the original advances as outlays and repayments as reductions in outlays. On the recurrent account nothing has changed.

Labor cut spending for a short period in the late 1980s, but the restraint was directed primarily at payments to the States, rather than Commonwealth spending for its own purposes. While historical comparisons are complicated by definitional changes and a lack of adequate data prior to 1975-76, Commonwealth own-purpose outlays as a proportion of national income appear to be at the highest level on record - about 19.5% of GDP in 1995-96, compared to 18% in 198243 and 16.5% in 1975-76. Mr Keating's record is worse than Mr Whitlam's. Under Mr Keating's Prime Ministership, own-purpose outlays have risen by more than 20% in the last three years.

The shonkiness of the Budget bottom line is designed to conceal a failure to control spending.

Charter of Budget Honesty

This problem of Budget deceit combined with inadequate fiscal measures must be stopped.

Too much government effort goes into pulling slick tricks to hide the real outcome of the Budget. We need that effort directed to presenting a more honest assessment about the medium to long term contribution to savings and the mix between capital and consumption spending.

The Government is clearly in need of some stronger principles about presentation of budgetary information and dedication to long term fiscal goals. The is why the Coalition will introduce a charter of Budget honesty.

We need an honest Budget.

We need a formal commitment to a long term Budgetary surplus to reverse the recent explosion in Commonwealth debt. This has to be backed by honest indications from the Government about how they will achieve that outcome, and adequate budgetary information to assess progress to that goal.

Part of the charter of budget honesty should be the publication of data on the Commonwealth Budget structural deficit to give a picture of the underlying deficit after the influences of the business cycle are removed. If the OECD can publish estimates of Australia's general government structural balance, there is no reason why similar measures could not be included in what Mr Keating has claimed is the "Rolls Royce of Budget papers".

Such information would make a particularly important contribution to honest assessments about the Budget at a time when we are seeing a significant cyclical boost to the Budget.

Another major defect in the Budget is the distortion to outlays caused by factors such as asset sales, state debt and payments to the States. The Budget papers should include a long-term historical series on Commonwealth own purpose outlays.

Rather than being tucked away at the back of the Budget papers, the statistics on the adjusted ABS Budget deficit (removing the effects of asset sales and State debt) should be highlighted as the summary of the Budget.

Another reform to the Budget paper would be the presentation of clear information on the nature of the Commonwealth balance sheet This should include contingent liabilities such as the Commonwealth's unfunded superannuation liabilities. A balance sheet would enable an easy assessment of the effects of asset sales on the Commonwealth's assets.

Greater prominence given to the public capital account would be a good basis for more informed debate about the Commonwealth's role in rebuilding Australia's infrastructure that has been decimated under Labor.

The real bottom line in the Budget should not be a product of one-off asset sales and accounting tricks. It should be a measure of the changes in the Government's net economic position taking account of the Budget deficit and changes in superannuation and net assets.

Commission of Audit

I announce today that the Coalition will establish a Commission of Audit to audit the Commonwealth's financial position after the next election. The Commission will comprise independent persons in business and academia. The personnel and precise terms of reference will be announced prior to the election. I have had preliminary discussions with persons who would be qualified for this task.

It is my intention that the Commission will begin work on the Monday after the election, and report within 90 days, or earlier if that is necessary to take its report into account in framing our first Budget.

The Commission will report on:

the contingent liabilities of the Commonwealth, including Public Service superannuation;

the impacts of demographic change on Commonwealth outlays and how to make provision for them;

the preparation of a full Commonwealth Balance Sheet;

the state of Commonwealth infrastructure and the private and public measures required to restore it to levels required for the next decade;

financial performance targets for Commonwealth Departments;

the level of duplication between Commonwealth and the States in the delivery of services and the measures to promote more efficient delivery.

Outlays

In last week's Budget, the Government told us that they had engaged in a massive exercise in fiscal tightening. So what is the reality?

The Budget papers said:

"Measures taken by the Government since the 1994-95 Budget have decreased estimated outlays by a net $3,802 million".

However, with the exclusion of asset sales, government expenditure actually rose by nearly $6.6 billion: an increase of 5.4 per cent in nominal terms and 1.7 per cent in real terms. The fact that the government can claim to cut $3.8 billion from its outlays and still increase expenditure shows how Commonwealth Government programs compound and escalate in cost each year.

Take Public Service running costs as an example. In the Budget papers we were told about the Government decision to "achieve savings in running costs in 1995-96 by reducing the running costs of departments and agencies, as well as the operating expenses of most statutory bodies".

The Government has a long record of producing elastic forward estimates on Public Service running costs. Each year they have blown out.

Budget Forward Estimate 94/95 ($b)

91-92 9.78

92-93 10.90

93- 94 11.05

94-95 12.05

Over four years there was a $2 billion blowout in Public Service running costs. So what is the story in 1995-96? Well, this time the Government has changed the way it calculates the figures. Fortunately, the Government has produced a reconciliation table of the forward estimate for 1995-96 contained in last year's Budget with the 1995-96 Budget estimate.

After adjusting for the structural change in the way Public Service running costs are measured, the estimate has blown out by $641 million on last year's forward estimate. The $641 million blow-out even takes account of the Government's "cost savings" of $123 million. In other words, Public Service running costs were set to escalate by $764 million out of which the Government made a saving of $123 million.

Another way of examining the issue is to take a comparison in this year's Budget papers of the estimates for 1995- 96 of 'general administration' for the areas of defence, education, health, social security and welfare, and housing, and compare them to the forward estimate for 1995-96 contained in last year's Budget The 'general administration' component in these policy areas has blown out by $425 million.

Future year estimates will, no doubt, prove to be as elastic as past years.

The point which I wish to make is that expenditure restraint could be achieved simply by the Government meeting its published forward estimate targets. Of course, things can change in the course of 12 months. However, the Government consistently spends significantly more each year running the Public Service. I can accept some minor variations over time, but not persistent and major blow outs like these every single year. It is either a case that the Department of Finance Officers who put the forward estimates together are incompetent bunglers, and I don't subscribe to this view, or else, this Labor Government continues to invent new and more extravagant ways to spend taxpayers' money each and every year.

Let me say that on the outlays side of the Budget that the Coalition will always support fair and reasonable measures to protect the taxpayers' funds. I am not convinced that all the programs run by the Commonwealth Government are fully efficient. I do not think the public believes, it gets full value for its taxes.

Encroaching Duplication

Let us take a look at health and education. There is enormous duplication in the administration of health and education between the Commonwealth and the States. The States and the Territories are the primary service providers.

It is an altogether common pattern. The Commonwealth:-

supplements the funding;

starts to second-guess administration;

begins to supervise delivery;

seeks to supplant the services.

Two governments, neither of whom is fully responsible, spend their time dealing with each other. It is time we had a whole new deal. This is an area crying out for substantial restructure. This is not just a case of savings, it is a case of making governments account- not account to each other, but account to taxpayers and voters.

The whole new deal required between the Commonwealth and the States has been ruled off the agenda because Mr Keating pole-axed Prime Minister Hawke on the issue. We cannot let the bitter personal feuds of the Labor Party rule off the public interest.

These are just not the heretical views of Peter Costello. The newly-elected Labor Premier of New South Wales said a month ago that if the process of reforming Federal and State relations continued as it should, it would involve "the effective abolition of big bureaucracies in health and education". Mr Carr also questioned the value of the large number of bureaucrats regulating the performance of State Government departments that provide services such as health and education.

The Government's labour market programs present another area for major reform. The need and the scale of these programs is a direct consequence of Australia's rigid and arthritic labour market First, the Government prices disadvantaged groups out of the labour market then it tries to buy out the disadvantage. The aim of these labour market programs is not to create additional jobs. In its submission to the Industry Commission report on 'Impediments to Regional Industry Adjustment', the Department of Employment, Education and Training said:

"The substitution effects inherent in wage subsidy programs are well recognised. The aim of wage subsidies is not to generate additions to employment but to enhance the employment opportunities for target groups".

These programs are designed to shuffle the unemployment queue around; they do not create jobs. Every time the Labor Government professes concern on unemployment, it increases spending on labor market programs. Last year, Paul Keating introduced his Working Nation White Paper. The solution was to spend an additional $4.8 billion on labour market programs. In November 1991 Bob Hawke, just like Paul Keating, released an employment statement In Bob Hawke's statement, he promised a further expansion of labour market programs and a 94% increase in assistance to these programs. Paul Keating's solution is 'more of the same'.

Labor now has a $14.2 million campaign to 'sell' the Working Nation program. Does anybody remember Bob Hawke's 'Priority One' program? This was going to be Labor's big youth initiative. The bureaucratic remnants of the 'Priority One' program, the Youth Bureau, can still be found lurking in the dungeons of the Department of Employment, Education and Training. The advertisements for 'Priority One' even won awards. The advertisements for Working Nation are also good. But essentially they are designed to advertise the Government. Labor's unemployed will still be around long after the advertisements have finished.

In his "deficit daleks" speech last year, Paul Keating posed the rhetorical question to critics of his fiscal management-

"Are we to savage the programs of 'Working Nation' - to slash the assistance that's going to getting our long term unemployed people back to work, that's making sure all Australians share in ie recovery?"

Last week's Budget answered Paul Keating's the question. It was 'Yes'. The Government cut $1.2 billion over four years out of the Working Nation labour market programs under the disguise of "more effective use of Working Nation funding".

Who said the Working Nation statement was unfunded and should be wound back? It was the Coalition. It is always the Coalition. Labor spends the first couple of years demonising our proposals and the next couple of years trying to adopt them.

The same can be said for the Commonwealth Bank.

Commonwealth Bank

The Coalition has long advocated the sale of the Government shareholding in the Commonwealth Bank. Labor said the sky would fall in. Labor took donations from the Commonwealth Bank Officers' Association to get elected to stop any sale of the bank. The Labor Party now plans to sell it. But what should incense the Australian public is the misleading nature of the way it went about it, not just with its ordinary deception, but this time in a prospectus. A prospectus is a document designed to induce investment. It is a criminal offence to make a misleading statement in a prospectus. That is, if you are anybody other than the Government.

Mr Willis said in that prospectus: "The Government has no intentions whatever of further reducing its shareholding." Last week, he announced he was selling the lot. This was less than 20 months after his categorical assurance. Mr Willis cutely says he changed his mind. Well, let me tell you. A lot of company directors change their minds after they have issued a prospectus and got in the money.

If the rule is that you can change your mind over matters totally within your control within the space of 20 months, the company directors of Australia need to know that. What is more the investors of Australia need to know it.

And let me make this point. If the assurance meant nothing, why was it there? If it meant the Government could sell down at any time, why was it printed? It was only there to induce investors to think the Government would not sell down. It had no purpose other than to mislead.

Mr Keating lost no time in taking advantage of the impending election to sell off the Commonwealth Bank without consulting his party. Interestingly, when the Commonwealth Bank bought the State Bank of Victoria, despite Westpac having made a bid $55 million higher, Mr Keating said: "Mrs Kirner believed that the benefits to Victoria of having a publicly operated bank take over the business of the former public, of the public State bank of Victoria, was worth more than 555 million in terms of the State interest."

Joan Kirner took a discount price to put the State Bank in public ownership. It will now be in totally private ownership. Joan Kirner - what about asking for $55 million back?

Mr Keating is now getting ready to sell Telecom. His denials cannot be believed. After all, on 30 August 1985 Mr Keating was reported in the Canberra Times as saying:

"We are as protective of the ABCs public position as we are of the Commonwealth Bank."

Mr Willis is now giving the same undertakings on Telecom as he gave on the Commonwealth Bank. He maintains his past undertakings are quite consistent with a full sale 20 months later. He must believe his current undertakings on Telecom will not bind him in 20 months' time.

Economic Prospects

The scourge of the current account deficit is expected next year to equal the worst ever record for Australia - this years result.

Indeed, the medium term current account outlook may be worse than the Budget papers suggest. As the National Australia Bank noted: "although the Government medium-term projections do not provide current account deficit projections, adjusting our models to replicate the Government's real activity projections would sec the current account deficit running around 5 per cent of GDP." Here, the NAB is referring to the entire period from 1996-97 to 1998-99.

The current account deficit is really a symptom of the constraint caused by inadequate national savings. To produce higher sustainable growth we need more investment, but without higher national savings to finance that investment, it will be stifled by higher than necessary interest rates and repeated current account deficit crises.

To illustrate the magnitude of the problem, we must not forget what is happening in the economy at present. Business investment as a proportion of GDP, according to the Budget, will in 1994/95 still be 1.6% of GDP, or over $7 billion, below its previous peak in 1988-89, yet we are experiencing a current account deficit in 1994- 95 of 6% of GDP, compared to 5.1% in 1988-89.

It is hard to avoid the conclusion that fiscal policy is a major contributor to this problem, when we see that the adjusted ABS Budget deficit in 1994-95 is expected to be $15.3 billion, compared to a surplus of $5.1 billion in 1988-89.

Labor's claim that interest rates have peaked is more Keating bluster.

The latest Reuters survey on interest rates conducted last Friday shows that market economists still believe interest rates will rise from June/July to September. Official interest rates are expected to rise by around-1.25% later this year, the same peak as in the earlier survey conducted in April.

According to this survey, the Budget has taken no pressure off interest rates, only slightly delayed the expected rise in short term interest rates. Rises in the official rates will flow through quickly to variable mortgage rates.

As the Commonwealth Bank noted on Budget night:

'The Budget does not alter the outlook for monetary policy to any great extent."

Mr Keating is setting the scene for an early election not because interest rates are falling but because he expects them to rise.

Recently the Prime Minister and the Treasurer claimed that the asset sales in the Budget were taking pressure off government bond rates. The fact is that bond rates do not determine variable mortgage rates, but official cash rates do, and the market believes these are set for a rise later in the year.

In the light of Labor's claim that interest rates have peaked, it is interesting to note that of the 25 market economists surveyed, only the National Australia Bank and two others support this view. The reason for NAB's forecast is that it expects a dramatic slowing in GDP growth in 1995-96 to only 3.0%, compared to 3.75% in the Budget. Does Labor now also endorse NAB's growth forecast? According to NAB's 1995-96 Budget analysis, the implication of these figures would be for a weaker fiscal outcome - the objective of reducing unemployment to 5 per cent by the end of the decade is most unlikely.

With Labor's talk of interest rates having peaked, we must not forget that Australia still has the highest bank prime interest rates among major industrialised countries - and unlike the long term bond rate, the bank prime rate is the base rate which businesses actually pay. Small businesses of course pay a considerable margin above that.

Someone with a mortgage of $100,00 will, by the end of this month, have paid $1,040 extra in interest thanks to Labor's interest rate rises since August.

Micro-economic reform and productivity

There is a general recognition that micro-economic reform will be the basis of sustained rises in Australian living standards. In his Budget speech, Mr Willis claimed that Labor's microeconomic reform has been a great success. He said "all these developments are keeping production costs and therefore inflationary pressures down....As a result of these improvements in labour and product markets, Australia's international competitiveness is now 18 per cent higher than in the September quarter 1990."

Mr Willis has to resort to shonky statistics to justify his claims. According to Treasury, the CPI based index of competitiveness adjusted for exchange rates has indeed improved by 18.4% between the September quarter 1990 and the December quarter 1994. But what caused this change? Treasury says that there was only a 2.2 percentage improvement in Australia's inflation rate relative to our major trading partners. The improved competitiveness in Australia was essentially NOT caused by improvements in our product markets, but by a massive 16.6% devaluation in the exchange rate relative to our major trading partners. A lower exchange rate means Australians have to work longer to buy a given quantity of imports. In simple terms, the so-called improvement in competitiveness over this period was due not to relatively greater productivity but to devaluation of the Australian dollar. We became more competitive not by producing goods and services more efficiently, but by lowering our standard of living relative to our trading partners. Not really an achievement to boast about. For Mr Willis, devaluation of the currency and the impoverishment of Australia compared to the rest of the world has become a substitute for genuine microeconomic reform.

If microeconomic reform has been so successful and Australia is really so competitive, why do we have the worst current account deficit in the OECD except for Mexico?

Microeconomic reform is not something that you have a go at and then forget. It is something that starts again every day. Other countries are running on that basis, and we have to stay in the race. It is not hard to see why Mr Willis's so-called rise in competitiveness was basically nothing more than an exchange rate effect. Labor has gone backwards in the key area of labour market flexibility.

But microeconomic reform must also be accompanied by better macroeconomic policy. Australia's high business interest rates compared to many of our competitors are the product of a failure of national savings which in turn is largely the fault of poor fiscal policy.

Future Developments

The estimated cost of the One Nation Statement in 1992 was $16.6 billion. It purported to set out the Government's financial position to 1995-96. Then came the 1993 election. In the course of that election Mr Keating promised another $.2 billion in outlays and revenue measures. Only the completely credulous would believe that Paul Keating has had his last pre-election word in this Budget.

Mr Keating should now explain this point. Does he intend to make further promises between now and the election? If he does, and on past experience he will, the Budget should be understood as a holding pattern awaiting further developments. No-one can say the projected deficits will be anything like the reality.

From the day he killed off Bob Hawke until the day of the 1993 election, Mr Keating committed around $48 million a day in addition measures, taking together 'One Nation' and the election campaign, as recorded in the 'Building on Strength' Statement.

Conclusion In an unguarded moment in a Chinese restaurant on the eve of the last election, Mr Keating told his intimates: "We have as a group ... put together a pretty canny little story ... We have been able to spin a giant tale ..."

What he spun was a giant web of deceit. The spider hasn't changed its pattern. He's at it again.

Only the Coalition can break the pattern. It's only the Coalition that will:-

promote savings by alleviating taxes on savings that are the highest in the world;

tackle the growing over-government through duplication and deliver genuine fiscal restraint;

remove the artificial edicts banning mineral exports;

break the logjam on employer-employee agreements;

even the taxation load on families;

remember the self-funded retiree.

On privatisation, it was always the Coalition. On enterprise bargaining, it was always the Coalition.

For too long, Mr Keating's shonk has corrupted public policy. It is time to cut it out. Only the Coalition can break the mould.

QUESTIONS AND ANSWERS

JOURNALIST

Recently you were quoted as saying that the Coalition or a Coalition government would neither increase taxes nor introduce new ones. Today you repeated the pledge not to introduce new ones but I don't think you repeated the pledge not to increase taxes. Was this an oversight? If not, how do you answer those who say that you are unnecessarily and irresponsibly reducing the flexibility of a future Coalition government to deal with unforeseeable circumstances and deliver significant changes in the tax mix? And finally, for all your denunciations of Labor's tax increases and new taxes, can we take it that you will not be giving back any of the money that Dawkins and Willis have so kindly put in the pipeline for you?

COSTELLO:

Let me say this. We're going to vote against those tax increases because we're voting against tax lies and we're voting against tax fraud. We're concentrating on stopping them. If they become part of the landscape that is the landscape which we will inherit at the next election. But I give you this assurance. We won't be adding to it. We're not the people that want new taxes in the next Parliament. Now Mr Keating's been strangely silent on this. A lot of background briefing about how this is something that shouldn't be done. If they're briefing you that this shouldn't be done it means one thing and one thing only. They have a proposal for new taxes in the next Parliament. We don't. We don't.

In relation to flexibility let me say that there is enormous flexibility in relation to privatisation, contracting out, in relation to outlays. None of those things are ruled off our book. Our book has always been an open and straightforward book and our position has been clear for a very long period of time. We don't need to engage in the shenanigans. It's open and there's plenty of flexibility there and we'll make sure that all of the necessary measures are taken within those constraints in the next Parliament.

JOURNALIST:

Could you outline your views about how you think interest rates should be used to manage the economy and whether at the next election you expect that there will be some kind of Coalition pledge to keep interest rates down?

COSTELLO:

Well I think that the conduct of monetary policy is something that's the responsibility of the Reserve Bank. We won't be amending its charter but we will be expecting the Reserve Bank to take a strong anti inflationary stance. We'll be expecting it to make sure that underlying inflation is kept within that band. And there won't be any sort of midnight calls or pressure or boasting as you've got from Mr Keating in relation to how he pulls the levers. The Reserve Bank will have that responsibility. But let me make this clear. We'll be making it easier. We'll be making it easier because we'll be running responsible fiscal account. We'll be making it easier because we want to take bottlenecks out of the Australian economy. We'll be giving it a nice easy ball to hit back and to ensure that it covers its responsibility.

JOURNALIST:

Given that you've just accused the Keating government of pinching your policies and you've just said that on enterprise bargaining it was always the Coalition and that the Prime Minister has said that the MIM dispute is enterprise bargaining in practice, what went wrong with enterprise bargaining? Also how would a Coalition handle a dispute like this differently and how would you maintain investor confidence in national industry in investing in Australia given that the Prime Minister has said - given if this is true - the Prime Minister just told the National Farmers' Federation you don't talk to unions and you can't deliver on union cooperation?

COSTELLO:

Mr Keating told the National Farmers' Federation that, did he? Oh well it must be true if he said it. You know with a track record like that.

Let me say in relation to enterprise bargaining what the Government did of course in relation to enterprise bargaining is determined to ensure the centrality of unions. And we believe unions have a role where they are the agents for employees and employees want them to negotiate. We welcome that. We want to see that continue. But let me say what the Government also did in relation to enterprise bargaining is that it removed all of the legal prohibition against strikes and lockouts. That's what it did. So don't be surprised if you've got a lockout the Government's made it legal. That was its policy. To legalise lockouts and strikes. And so we've got a lockout. All you can say is this must have been an intended consequence. Now I've never believed that in Australia today we should be legalising strikes and lockouts because I don't think we need more of them. I thought the important point was to keep the responsibilities on both employer and employee, regardless of their differences, to act within what were the time-honoured traditions. That's why we opposed that Bill. We also opposed removing the prohibition on secondary boycotts. The Government removed it. If you remove a prohibition on secondary boycotts and you start getting secondary boycotts as you are at the moment, how can you complain? You've got to say that this was an intentional, foreseeable, desired outcome of the Government's policy. But it's not our policy. Our policy is to encourage employers and employees to agree, to do that within a framework of law that protects them both and to do that through their preferred agent of bargaining choice. It's also to prevent strikes and lockouts spilling over in relation to secondary boycotts. Those laws can be effective. I know from personal experience they can be very effective. If you take them off, if you ask for law of the jungle to prevail, don't complain if you get it.

JOURNALIST:

I wanted to be clear on this. Despite the fact you're saying you're going to block the tax changes announced in last week's budget, is it right - yes or no - that you won't repeat any of the new taxes or give any of the money back from the tax changes that were announced in last Tuesday's budget if you win the next election? And I was just curious, bow to you feel when someone describes you as a crow sitting on a fence picking the eyes out of everything?

COSTELLO:

Let me say this. I'm not picking out the eyes, I'm picking out the lies. And when you pick out the lies of Paul Keating, there's nothing but a carcass left with a mouth on the end of it that spits forth venom - mostly written by Don Watson. Now if that upsets him, he better get used to it. You know, he doesn't have a licence to run around Australia abusing people. You know, make these little speeches at ALP fundraisers. You don't just get one days headlines, you get two. Now let me tell you this is not a Liberal Party branch function. This is the National Press Club. If those sort of allegations that he can make - not just against me but against everybody else - can get pictures and captions in newspapers, what we need tomorrow is a picture of Paul Keating and a caption wanted for tax fraud. That would be a fair rejoinder in tomorrow's press. Put up the mug shot.

Now in relation to ... in relation to yow question about taxes I say this. Look, we're going to try and stop those taxes coming into effect. I am not going to now enter into speculation as to what will happen down the track if they come into effect because I don't know what form they'll be in and I don't even know if they'll get through. But what well say is if the Parliament of Australia wants to put those taxes on the landscape, if the Parliament of Australia - you know, if the Democrats want to be accessories to the fact and put them on the landscape of Australia - you can't expect us to always bail you out. We'll try and bail you out and stop it happening but you can't expect the Coalition in a position of Opposition to always bail you out. Sometimes people have got to take the full medicine of Mr Keating. But I want them to know this. They ought to know where it's coming from. They ought to know who's [inaudible].

JOURNALIST:

I've got a two part question. Was the recurrent spending cut enough in the budget? And if not, how much should have been cut? And if you can not say how much, how do you know the Government has gone as far as practicable?

And secondly, you talk today about establishing a Commission of Audit in the first month of a Coalition government. How can you rule out any future Coalition tax rises given short of the results of that audit, you're in the dark about the true nature of the Government's economic position?

COSTELLO:

Well I guess the last proposition, you are in the dark about the true nature of the Government's economic position. You're in the dark for two reasons. One is they have a secret tax agenda. Secondly, they haven't yet started the election campaign war on their outlays. This budget is just a holding pattern. You've just got to go back to the 1993 election and see how Mr Keating approached it and see the amount of money that he whacked out during the election campaign. Look, we're not won in an election campaign and we're already making promises over in Adelaide.

Where is all this coming from? You know, Mr Keating has got to tell us two things. Will say he doesn't want any new taxes? That's the first proposition because if he won't say that, he's confirming his secret taxes. The second thing's he's got to tell us. He's got to tell us, is this the end of outlays? Now you said to me does the Coalition believe that cuts in outlays were sufficient in the budget, something to that effect. There are no reductions in outlays in the budget. It's a 1.7 per cent increase in real terms. AU you're getting is yow getting shaving off the forward estimate. And as I've shown from the last performance, shaving off the forward estimate is always counter-[inaudible] shoring up the forward estimates. If you take the public sector running costs. What they do each year is bump them up and then they shave them back a little bit. It's all down the track. We are entering a very surreal environment in Australia at the moment. We're, the Government has given up saying what it's going to do in the next Parliament. It's telling you what it's going to do in the one after that and the one after that and then in 2042. That's because they know past experience says you can't believe what they say. Because you've broken short-term promises let's distract the public with long-term ones. And so again you get all of these manipulations in the budget of forward estimates. The one thing they always have in common is they're not this Parliament. And let's try and face up to it if we manage to get back and that is to get back, they'll face up to it [inaudible]. It'll be taken away.

JOURNALIST:

You've said in answer to other questions that you won't introduce any new taxes after the next election. Can you give us a pledge that existing taxes won't go up either?

COSTELLO:

Well look there some excises and things which are indexed to inflation. And obviously I'm not talking about those sort of things. But what I am saying here is, we'll not be hiking the income tax rates or the company tax rates or the sales tax rates or extending the sales tax in the way that the Government is proposing. That is not our agenda. It is not our agenda to introduce new taxes. It is not our agenda to bulk up the currently existing taxes. That is not our agenda. The real question here is whether it's Mr Keating's agenda. Now what you should all do this afternoon is to go down to Mr Keating, you should ask him whether he will say the same thing. Ask him whether he will say the same thing. Last time when he legislated to cut them he bulked them up $9 billion. This time if he won't make any comment, start at $9 billion and work up.

JOURNALIST:

You said a couple of weeks ago that one important goal of the budget should be for the Government to cut its underlying budget position. That's after reducing the cosmetic impact of asset sales and State debt repayments, the balance in '96-'97, on its figures the Government's come pretty close to achieving this. Does it follow that the Government's underlying position for '96-'97 is about right? And if not how much further should they go?

COSTELLO:

Well there's, as you know Robert, there's an open question as to whether the underlying position will be in a surplus on current figures 1996- 97 and there are many informed economic commentators saying it won't be. And let me make a prediction, I'll make a big prediction now. If they were ever re-elected some of the asset sales which are in this year's bottom line will appear in next year's as well. [inaudible] how they would have had enough figures [inaudible]

But our policy and our position is this that we want to see an underlying structural balance in %'97. That's our policy. We are not going to say that the Government will achieve it at this stage because we haven't factored in the promises of the campaign. And past experience tells us that they never do meet their [inaudible]. But we will make it a part of our policy to produce that outcome.

JOURNALIST:

Mr Costello, your Commission of Audit does sound like a fancy way of giving you a possible let out after the election on pre-election promises [inaudible] the Government say things we found to be so different we've got to change tact. Do you give an undertaking that that review would not lead to the modification or scrapping of any promise that was given by the Coalition in the election campaign?

And secondly, you appear to be increasingly cutting out any flexibility in fiscal policy under a Coalition government. Your promises about tax, reiterated today, you'll talk about a surplus going on and on, where did you get the flexibility needed to run fiscal policy throughout an economic cycle?

COSTELLO:

Well I'm glad you made that point Michelle because this table seems to think I'm being too flexible. So I'm pleased that this table thinks that I'm not being flexible enough. But let me say in relation to economic policy we think that the real object in relation to the Commonwealth at this particular time is to deal with Commonwealth own purpose outlays. We don't want new taxes to be the valve that will let the Government off the hook. This Government or indeed our own government.

Now let me say in relation to flexibility you've got the whole of the fiscal accounts, you've got what I believe would be really important for Australia and that's a better way of having Federal State relations, you've got the opportunity to really do something structural in relation to duplication of services and we will not be making grand promises at the next election. I'll say that now. We'll not be making them. Grand promises have had their value taken away by Mr Keating. I don't think the public believes grand promises. What well be putting forward to the Australian public at the next election is a series of modest proposals in areas where people have done badly and need to be picked up in the future. The people that really need to be picked up in this country, the families that have seen their comparative tax position decline. And the self-funded retirees who never receive anything. Who have taken the last big cheat in last Tuesday's budget.

Now in relation to the Commission of Audit, you're so cynical Michelle. How do I break through this cynical barrier of yours. The Commission of Audit is something that I think has been tried and worked with considerable success in a number of States, considerable success. The Commission of Audit is really a part of a charter of budget honesty. What's made it necessary now, what's made it necessary in the current climate, is the shonk of last Tuesday night's figures. That's what's made it necessary. Now, I'm not saying that the Department of Finance is involved in this. I think the Department of Finance is a conscientious group of people that over a long period of time have done their task as best they can. But there's been political manipulation and you've seen in relation to this budget the way in which the Government has tried to manipulate. Look, you don't need me to tell it. I remember going out two weeks before the budget and saying that with asset sales, they would a notional surplus, and the serious man from Ralph Wlllis' office, whoever he was, came around and told you all that this was unthinkable. It couldn't be done, and you all wrote, it couldn't be done. You know, the serious man has told us. Some papers even named who he was.

I mean, how do you feel then on Tuesday night? How do you feel when they were laying this line on you and they were laying the line on you because it was a sophisticated mechanism to lure you into a false sense and then beat it. I mean, this has been going on now for l3 years. When do people suddenly sit up and say, "You know, Keating, you've had your 13 lives. We don't believe you."

When do they do that? Now, what we're saying in relation to the charter of budget honesty is to make sure that you're not prey and subject to that kind of manipulation, to make sure that there's an outside, independent commission that will ride the Commonwealth accounts to make sure that they are clean, and also to start producing a new kind of presentation, a presentation which includes things like balance sheet, a presentation that tries to put a figure on unfunded superannuation liability. Do you know the Auditor General a couple of years ago produced a report. He said he couldn't say what the unfunded superannuation liabilities of the Commonwealth were, and the report was called something like, who pays the piper, or the national credit card, or something. That was the Commonwealth's Auditor General.

Now what business would be operating like this? You know, how many time bombs are there out there ticking? Tick, tick, tick, tick, you know. And what the Commission of Audit is all about is to actually find some of those time bombs, bring them in and disarm them.

JOURNALIST:

If you win the next election, will you scrap or amend the superannuation changes which were announced in last weeks budget?

COSTELLO:

Well, if we win the next election, you will then have the super guarantee charge I think at about 6%. It may vary between small and big business. I don't think you will actually have by

the way, have any award employee contributions going into it. As I understand the Government's proposal, the Government's proposal is to start those contributions from 1 July '97, and to pay a matching tax contribution from 1 July of 1998. Bear this in mind, if Mr Keating calls an early election, sometime in the winter of l995, those tax cuts wouldn't even appear in the next Parliament, wouldn't even appear in the next Parliament, so I don't think it will be in place frankly. When you boil the whole thing down, however, apart from the elaborate smoke to cover the One Nation tax rort, what this is, when you boil it all down, is to give a tax incentive to make your own contributions to superannuation. That's what it is, and we will have tax incentives to encourage people to make their own contributions to superannuation but frankly, I don't think this is the best way of going about it.

JOURNALIST:

You mentioned the DASFLEET sale. Will the Coalition give a commitment to, when they privatise, to privatise properly. That is by selling off the staff as well, or reducing the Government's staff so they're not still on the Government books?

COSTELLO:

I don't think there's a market in staff. It sort of went out with Wllliam Wilberforce as far as I can recall but let me say, you know, that the whole idea of contracting out is you contract out where you can give a consumer a better service, where you can give the same service for a lesser cost. This is a contracting out where you can't see any basis on which you get efficiency

gains because all the employment terms stay the same, and if it's a lesser cost, it's factoring. It's factoring. It's bringing forward a capital payment offset against lease payments down the year.

Now go and try and find those lease payments down the year in relation to DASFLEET. We can't find them in the budget papers. In fact, they're still showing revenue from DASFLEET which makes me think that the DASFLEET sale was thrown in at the last moment and it's been picked up in the asset sales but it hasn't been picked up in relation to the outlays.

Now in relation to DASFLEET, the only, if it goes through it's gone through, but in relation to DASFLEET or contracting out, let me say, I mean, I can only see an advantage in it when it

delivers a better service or the same service for a lesser cost. If it's to be done, it most probably has to be done by the employees changing their patterns as well. But it's got to be looked at on a case-by case analysis.

JOURNALIST:

Will you be announcing the make-up of the Commission of Audit before the next election.

What does the idea say about your view of the quality of advice you'd be getting from the public service, and how many secretaries of departments would be secure under a Coalition government?

COSTELLO:

The answer to your first question is yes. The answer to yow second question is, as I said earlier, I've got a very high respect for Finance. I think Finance does its job. I have a high respect for Treasury. I think Treasury has sought to do its job. We now know, don't we, who stopped them doing their job, who got to the forecasts. The trouble was, we found it three years after the event, didn't we. So I have a high opinion of them. I think the problem for the public service is that they've had bad political leadership. I think they've been conscientious and done what they could, but at the end of the day, the public service, strictly speaking, the career public servant works for the Government, doesn't it, and it has to take its direction from the Government. So I have a high respect for them.

On, I think your third question was departmental secretaries, well Michael, I could assure you of this. If there were changes to departmental secretaries, I wouldn't announce it at the Press Club. I would feel that one should discuss it with departmental secretaries and departments. I mean, that's the proper way of doing things and if it were to occur, and it's not something that I've given any thought to, at least any thought at all outside the departments that I take an interest in. I would't imagine it would be for the Ministers concerned.

JOURNALIST:

After Saturday, I'm tempted to ask you if you think Salmon has a future on the forward line at Essendon. My main question relates to the duplication issue. Both Greiner and Carr have talked about the possibility of the Commonwealth phasing down its role in health and education in exchange for the Commonwealth taking up a bigger role in industrial relations. I'm pretty sure that a Coalition government would like to widen its powers in that area. Is it something you will pursue actively?

COSTELLO:

I think there's a lot in that, Mick. I think the states are aware of the problems in relation to health and education, and they've been talking about it for a long time. The reason it's off the Commonwealth agenda we know, is Paul Keating came down here to poleaxe Bob Hawke. Okay? He used it as a battering ram to poleaxe Bob Hawke, and it was put off the public agenda. That's what's wrong with it. You know, Labor Party faction fights should not rule the public agenda in Australia. We want to put it back on, and I have every reason to believe that Premiers like Kennett and Court are very interested and, as I said in my speech, I think Bob Carr is very interested in that proposal. In relation to industrial relations, I must say to you, I think the legal position now is that it essentially is a Commonwealth area. I think we have to recognise that. As a result of the external affairs doctrine and as a result of the reliance on covenants and as a result of the legislation, as a result of the decisions of the Federal Tribunal, it principally is now a national area, and I recognise that and I think that that probably means as a matter of law and custom and practice, it's got to be handled at the national level. That's what I'd say.

And in relation to your first question, Salmon does have a future in the forward line. He's got to be left there to play out a full game though.

JOURNALIST:

Onto a different issue, is it your view that the Canberra by-election and the state of the economy has spooked Mr Keating off the republic, and do you want the Government's position on the powers of the head of state clarified before the election, or arc you happy for the issue to be bumbling along the way that it is at the moment?

COSTELLO:

Well, it's a moveable feast, this republic, isn't it? We're told that we're going to get a position from the Government last year, and we'd get it this year, and then we can't have it because of the Canberra byelection. You know, we can't have it next month because of interest rates. It's a moveable feast that just keeps disappearing. The reason that it keeps disappearing is that when you actually sit down to do the hard work, it becomes difficult. It becomes absolutely difficult, and Paul Keating's approach to this issue has never been to try and work out a definite concrete proposal It's never been an idea of actually putting to the Australian people two products so they can choose. What it's been essentially is using it for politics. He's not interested in it as a constitutional vehicle. He's interested in it as a rhetorical slogan, and I think some of those in the republican movement realise that. I think one of them made some comments yesterday. He was right. The only thing I can say to Mr Turnbull is, I', sorry it took you so long to work out what Mr Keating was on about. A few of us have been around this town for a while and worked it out many years ago.

Ends.