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Paul Lyneham, Nightline, Wednesday, 4 March 1998: transcript of interview [Asia; National Accounts; tax reform]

LYNEHAM: Welcome again to Nightline

TREASURER: Thanks Paul.

LYNEHAM: You've described the economy as moving quite nicely down the highway picking up jobs growth along the way. The chamber of Commerce and Industry says the economy has entered precarious times because of the Asia crisis. Who do we believe?

TREASURER: Well me. I'm not sure they've said any more about that and I'm not sure what they mean about it. We've got an economy which is growing at 3.6 percent.

LYNEHAM: Is that enough to meet that Asian crisis later in the year?

TREASURER: We've got 140,000 jobs which we've created over the last couple of months. We've got inflation the lowest in the last 30 years. These are very good portents by international standards, let's be clear about this.

LYNEHAM: All these businessmen have got it wrong. They're looking in the wrong crystal ball.

TREASURER: Well I don't, I think it was one statement by somebody from the ACCI and I don't think it was backed up by anything. But having said that let me say it's important to bear in mind that we are facing an external downturn. If it had not been for the external downturn, I think as the Yellow Pages today said, there would be near boom conditions. It's strong, but because of the Asian downturn we won't break any records.

LYNEHAM: But you said back in October "that the impact on Australia of the Asian crisis would hardly be measurable".

TREASURER: I said in relation to ...

LYNEHAM: That's a bit gung ho in hindsight isn't it?

TREASURER: No, no I said in relation to ASEAN, where 10 per cent of our exports went, that the effect on our exports for the ASEAN four as they then were would hardly be measurable. Of course as the crisis spread into Korea and Japan the effect on Australia became much greater.

LYNEHAM: In the December quarter the only strong growth factor was private demand, consumers buying goods and services. Now if that loses steam, you're not going to get the jobs growth you need.

TREASURER: But that's the great thing of course isn't it, that just as we go into a time of external challenge that the domestic economy is picking up strength. Let me make this point Paul, it's very important that you understand this I think. That in the last 10-15 years Asia has been a source of great growth for our economy. We haven't been through a situation like this before and what that means is we're not getting external stimulus. Not from our own doing, but because of what's happening in our region. The great news is that we lost that 10, 15, 20 year advantage that we've had, the domestic economy has been responding to low interest rates and so it's been counter- balancing. Now don't get me wrong about this, this is a great external challenge that we must have the policy responses for and we should be driving the economic reform agenda harder. But the good thing about it is that the policy we put in the bank, the good decisions of the last two years are now paying handsome dividends for us.

LYNEHAM: But you're in a catch 22 aren't you? If domestic demand stays strong, we're going to be looking at a crisis on the current account. If domestic demand falls off then you're looking at a situation where you're not going to get those jobs coming through.

TREASURER: Well, as I said before, we want strong domestic demand. If we didn't have strong domestic demand and we had weak external demand, we would be in a bad position.

LYNEHAM: But we buy so many imports don't we.

TREASURER: So what we want is, we do want at a time like this good strong domestic demand to counterbalance events which are outside out control.

LYNEHAM: But is the MTIA too gloomy when they're talking of a record current account deficit next year of around $30 billion?

TREASURER: Well I'm not putting any figures on next year but you can look at these things in nominal terms and say it's a record. I mean you could look at today's GDP figures and say it's a record.

LYNEHAM: But it is ....

TREASURER: Well let me make my point ...

LYNEHAM: ... international confidence.

TREASURER: ... highest GDP in Australian history today, in nominal terms. The measures that are important of course are what the current account is as a Percentage of GDP and we've been through three current account crises in the last 15 years...

LYNEHAM: Are we going to have another one now Treasurer?

TREASURER: ... where we had current accounts up at 6.8 per cent. We're looking at a current account now, what 4 1/4.

LYNEHAM: Heading to what? Five, six?

TREASURER: Well I've said earlier, I've said earlier that with the external situation you would expect the current account to grow. We've made that entirely clear and I say that again.

LYNEHAM: And that's a political problem too.

TREASURER: I say that again, you would expect it to grow. But I say two things. One is you're nothing like the six or six plus per cents. Secondly, you're in a low inflation environment. We were going into current account problems with inflation up at 9 per cent. What are we now - 1, 1.2. We now have the best inflation performance of any country in the developed world practically. Now this is a great strength of the Australia economy.

LYNEHAM: Ultimately these deficits roll onto the foreign debt. Your election campaign debt truck was all about promising to get that under control. In fact, the foreign debt is $28 billion bigger than when you became Treasurer.

TREASURER: Well, as I said before, I mean you can say in nominal terms things go up ...

LYNEHAM: They're supposed to go down though.

TREASURER: But hang on, the GDP is at an all time record, as a percentage of GDP this is not a record at all. This is lower than the peak under the Labor Party, number one point. Number two point, what is the source of Australia's foreign debt problem and our current account? Servicing the build up of debt under Mr Keating's government. I've said before look if he was able to take foreign debt from 23 to about 190, from about 16 per cent to 40 per cent, over the course of 13 years, we were never going to turn that around in 13 months. First of all we stabilise the situation and then you start to turn it around. But a problem that has built up over a decade is going to take years and years of sustained work to fix. And that's what we've begun.

LYNEHAM: What does the Asian crisis suggest to you about the timing of the Federal election?

TREASURER: The Asian crisis suggest to me these points. One: the highly interventionist policies didn't save those Asian economies from what is now very severe financial meltdown. Two: they illustrate the importance of ensuring that if your economy is overheating that you make sure that your growth is sustainable. And three: they illustrate the importance of very sound financial and banking prudential management regulation. I think there are big policy lessons for Australia in all of those areas. And I just say, one of the big reforms we are now working on of course is the Wallis financial reforms, to make Australia state of the art in banking and financial policy. Not only can we make Australia state of the art to protect Australia but we can make this a regional financial centre which is an enormous trade opportunity for Australia. And that's the way we'd like to see things go.

LYNEHAM: But does this crisis, turmoil, suggest that the Government should go to the polls sooner rather than later in your view?

TREASURER: Oh, look our thinking won't be governed by external events. Our thinking will be governed by going to the Australian people at a time when we have a policy program which we can get their endorsement for. A policy program, particularly in the area of tax which we need a mandate to drive Australia forward on.

LYNEHAM: The PM says every election since '74 has been decided on the economic situation. You'd want to go before it starts to slow down too much wouldn't you?

TREASURER: Well we've got a pretty good story to tell. Let's go through it. We've got growth which is as high as any country in the developed world. We've got an inflation rate which is the lowest we've had in 30 years. We've got housing mortgage rates down at 6 per cent, that's 4 per cent down on what they were when we were elected.

LYNEHAM: (inaudible)

TREASURER: We've got 140,000 new jobs ...

LYNEHAM: [inaudible]

TREASURER: ... in the last 5 years (months). And we've got a Budget which is going back into balance for the first time in a decade. Now you'd have to say that's a pretty good story to tell the Australian people.

LYNEHAM: And talk of big personal income tax cuts if they buy your tax reform package?

TREASURER: Well, and why are we going back to the Australian public? To say, one: we need to continue the sound economic policies. If you go back to Labor you're going to have tax and spend. You're going to have deficits and high interest rates. And you're going to have a group of people back in control of the economy at a time when we face a substantial external challenge which they wouldn't be able to handle. Wouldn't have a clue. So that's the first thing we say. The second thing we say is this: now is the time to really start working the policy changes, particularly in the tax area. But we need the support of the Australian people to do it. Labor is opposed to change. They are going to stand in the way of tax reform and the only thing that will get tax reform in this country is if the Australian public will give us a mandate to overcome Labor oppositionism.

LYNEHAM: But early last year you were very unenthusiastic about rolling out the old tax reform cart. Why this change of heart?

TREASURER: Well, we said before the last election that we wouldn't be doing major tax reform in this term. We've implemented our agenda in full, in relation to family tax, capital gains tax rollover. And now we're looking for a new mandate. This time the mandate we need is to improve Australia's tax system and position this country.

LYNEHAM: But how long before the election campaign will we see your tax reform package?

TREASURER: Well we'll be releasing it when we've finished it. And when ...

LYNEHAM: A good few months ahead?

TREASURER: Well, the submissions in relation to tax reform closed I think last Friday. We've been overwhelmed with submissions. We're now starting hearings in relation to that. That's going to take some time but we are working I can assure you, to overcome, to try and finish it as soon as possible.

LYNEHAM: The Opposition has drawn attention to the fact Treasurer that you've bought a couple of new suits for the new Parliamentary year. We're not seeing a touch of the Paul Keating's per chance?

TREASURER: No. No Paul this is just, you're seeing a couple of frayed old suits being recycled through St Vincent de Paul and a few new ones being recycled over my back.

LYNEHAM: And you're not starting therefore any antique clock collection on the quiet?

TREASURER: The best clock that I've got is one that takes a 12 volt battery.

LYNEHAM: Thanks for your time.

TREASURER: Thank you.