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TRANSCRIPT OF PRESS CONFERENCE BY THE HON. RALPH WILLIS, MP, TREASURER, PARLIAMENT HOUSE, CANBERRA - 16 DECEMBER, 1991

E & OE PROOF ONLY

WILLIS: Ladies and Gentleman, today I’m announcing the results of the

Government’s analysis of the revenue aspects of the Opposition’s goods and services tax package which has been conducted by Treasury and the Australian Tax Office; and drawing out the budgetary and related economic consequences of the Opposition’s proposals, and in

summary, there is a revenue shortfall of $1.1 billion. The reasons for that shortfall are contained in the attachment to the press release and I’m not going to go into detail of them at this stage. When all the adjustments are made to put the outlays and the revenue figures on

the same basis, consistent with the Opposition’s approach, then the shortfall in their package is $3.9 billion in 1990/91 prices. The implications of this gaping whole in the Opposition’s package are demonstrated by the fact that the $3.9 billion equates the total amount of GST compensation that was to be paid to pensioners and beneficiaries in the way of increased pensions and benefits, to families through increased family allowances, and for the re-insurance pool for private health funds to prevent health insurance premiums going through the roof. Now, clearly Dr Hewson has either to forsake his promise to provide the compensation he’s proposed, or, pursue a much different budgetary policy from that which he’s proclaimed to be his objective. If he does maintain his compensation, and drops his bottom line, there will undoubtedly be substantial, even spectacular, rises in interest rates. The overall economic result of his package can now be clearly seen as producing higher inflation, higher interest rates, reduced economic and employment growth and higher unemployment Let me go just briefly

to those. Higher inflation because of the goods and services tax, clearly adding to inflation when it’s introduced, but likely to become at least partly built in as wage and salary earners seek wage rises to achieve full compensation for the goods and services tax. Higher interest rates, as budgetary policy is relaxed by almost $5 billion in the very year the goods and services tax is introduced. So, in the very year that we have the goods and services tax, with its substantial inflationary impact, budgetary policy is relaxed, on the figuring which we’ve now produced, by just under $5 billion. Thereby necessitating a large hike in interest rates to try to squeeze the inflation out. Reduced economic and employment growth because in year 1 budgetary policy would be tightened by $1.7 billion which would slow the rate of recovery at that stage. In year 2, as I’ve just mentioned, the budgetary policy swings around with a relaxation of just under $5 billion, and a deficit increase of $3.1 billion. And, although this should stimulate growth, the monetary authorities would be bound to be absolutely aghast, that this should be happening to fiscal policy at the very time when a major inflationary impost was being put into the economy, through the goods and services tax. So, the whole weight of the tightening of macro policy, which is an essential element to try to ensure that the inflation impact doesn’t become built it, would be put onto monetary policy, which would also have to compensate for the big relaxation in fiscal policy. So, from this large increases in interest rates would be an absolute certainty, completely eliminating any compensation for the goods and services'tax for many people, and ensuring that this package would make them much worse off. Now, as high interest rates slowed economic and employment growth, we could, of course, be certain of substantial further increases in unemployment. So, this is a package that

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is totally against the national economic interest. If implemented now, it would snuff out economic recovery, and condemn us to, at least, a few more years of recession. It would push unemployment to much higher levels. It would simultaneously return us to levels of inflation, near, or even above, double digit levels for sometime. And, we would risk permanently higher inflation, particularly, as the Opposition would have no wages policy and no Accord, with which to restrain wage claims in these circumstances. In other words, we would get a repeat of the previous Hewson/Howard achievement of double digit inflation and unemployment which they last achieved in the early 80’s. It would also send interest rates off to another soaring upward spiral. Thus, causing much more economic and social pain. Now, what sort of vision is this? The 2 million jobs that Dr Hewson claims would result from his package, is not so much a vision as a mirage. And, it comes from his scenario C analysis that doesn’t even include the goods and services tax. Now, it’s therefore, utterly irrelevant as a guide to the employment outcomes of his package. Now, the employment realities are, in fact, the reverse of what he portrays, for the reasons that I’ve already mentioned. Employment outcomes over the next few years, with this package implemented would be certain to much worse than would otherwise have been the case without that package. Now, finally, ladies and gentlemen, I should say that the Treasury has also conducted a detailed analysis of the distributional aspects of the Opposition’s package. Now, that should be available to present

to you in the next day or so.

JOURNALIST: You basically argued today about the macro economic impact of the Opposition’s package. Is the Treasury also going to model how it assumes that package would affect the economy?

WILLIS: I’ve not asked it to do so, nor am I aware that my predecessor has asked for that to be done.

JOURNALIST: Don’t you think that’s fairly worthwhile? I mean, the issue is starting to revolve around how many jobs there are, what (inaudible) interest rates. And, at the moment all we’ve got is the claims and counterclaims between you and the Opposition.

WILLIS: I’d be quite happy for them to do that. I think, it’s quite clear, on the basis of what we now know, indeed, it was clear even on the Opposition’s own figures, but it is even clearer now on the basis of the correct figures, that the proposals from the Opposition must involve a large increase in interest rates in year 2 because of the budgetary policy which they are pursuing. It is just incredible to propose a policy which involves, before the introduction of the goods and services tax, a tightening of fiscal policy, and if we are to do that in current

circumstances, of course, we could expect some strangling of the economic recovery as a result of that. And, then to relax it considerably, in the second year when you’re introducing this inflation impact, is just asinine.

JOURNALIST: Treasurer, all those terrible things you described have already happened under your Government. Could you give us an indication of how much worse things will get? Will unemployment go from 1 million to 2 million? Will the deficit on the current account go from 130 billion to 260 billion? Will interest rates go from 16 or 17 percent as they are now, to 32 percent? Could you give some detail from your projections?

WILLIS: No, I’m not going to give you that detail, because I don’t have it. But, what

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I do have is a clear indication of the direction of policy. And, it is untrue to say that these things have happened under us, we haven’t had a goods and services tax. So, this situation that we’re looking at here, and analysing the implications of, just simply hasn’t arisen before. And, nor does the modelling which has been undertaken by Dr Hewson have any relevance to this situation, because he ignores the whole process of the need to adjust to the implementation of the goods and services tax. Now, what is absolutely clear, and, of course, it would depend on exactly how people reacted. If Dr Hewson decides that in the face of all this, that he would rather jettison the compensation to large groups of Australians for the goods and services tax, he might be able to diminish some of the impact that I’ve portrayed to you. And, in the table that we’ve produced at the back of the Press Release which sets out the budgetary impact, we’ve assumed that he would maintain his expenditures and his compensation, and it was the bottom line that would go. Now, in those circumstances, I think, the whole direction of policy, the whole direction of economic outcomes, that I’ve portrayed to you, almost inexorably follow. ,

JOURNALIST: Mr Willis, that’s just your assertion. Couldn’t you give us some idea, or couldn’t you ask your Department, what they think would happen to macro policy? What would happen to interest rates?

WILLIS: Well, I’m quite certain what the advice would be.

JOURNALIST: Do you know that. I mean, have they told you?

WILLIS: No, I’ve not had a detailed economic discussion with my Department about this matter. But, I don’t need to, to be able to say to you quite dogmatically what I believe the position would be, and I’m sure it wouldn’t change with any advice from Treasury. I mean, any economic adviser worth his salt would tell, that if you are bringing in a 5 percent, or whatever the inflation impact is, and at the same time you’re relaxing fiscal policy considerably, you must face a soaring level of interest rates, because you’re throwing the whole weight on monetary policy. Every country, every country, which has introduced a goods and

services tax has to, at that time, take some positive steps to try to ensure that the inflation impact doesn’t become a permanent feature. And, to do that is just grossly irresponsible. Now, it maybe that they would be grossly irresponsible, I don’t think so. What the Opposition is saying to the Reserve Bank is that you have an obligation, under their whole proposal they

say, they would have an obligation to bring in an inflation rate of 0 to 2 percent. And, here they are putting an inflation impact of several percent, and then saying we’re going to relax fiscal policy by $5 billion. What do you think is going to happen to monetary policy if you were Bemie Fraser running the Reserve Bank, and you saw that coming. I mean, you wouldn’t wait for year 2, it would be happening in year 1. And, the fiscal policy relaxes further in year 3. I mean, there is just no doubt that this is a scenario for substantial increases in interest rates, and it might be ameliorated to some extent, if they were to jettison the promises of compensation, which they now can’t fund, to $4 billion.

JOURNO: If you’re so sure of that, would it help your cause in making those arguments and putting those points, if you were to release some sort of a broad outline from the Department which says ’this is what we think would happen to macro policy’ given that this will be such an important...

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WILLIS: I don’t know necessarily the Department’s role anyway. The Department’s role is to do what they have traditionally done, and that is to produce an analysis of the figures and that has been produced, there is one more element to go which I have referred to on the distributional side. I don’t know that it’s necessarily the role of the Treasury or any other Department to start to give detailed analysis, that’s a matter for the Government to decide. But in doing so, of course we have to give you solid reasons and I believe I am giving them to you.

JOURNO: Over the last 18 months, Treasurer, we have seen a turnaround in the budget of about $14 billion. Do you think that’s the sort of thing that would happen under the Hewson package?

WILLIS: This is all on top of that, of course, so, $13 billion and almost all of that is non-discretionary. This is a discretionary change. This is not brought about by any change in economic parameters, this is discretionary change. And in the second year, they have a discretionary change of $5 billion relaxation on top of anything else that was happening.

JOURNO: Mr W illis,... the fallback from the black economy ... and if that’s the basis of these figures today, isn’t that a little unrealistic? Surely they must get some revenue back from the black economy?

WILLIS: No, I don’t think so. The goods and services tax is applied to the array of expenditure in the economy with few exceptions which outline the package, particularly health and education. Otherwise, everything people spend their money on, whether they earn it through drug-running, criminal activities or whatever, will be taxed. And that is built into our figuring. So, it’s in our GST package per se insofar as there is any such addition to revenue, then it’s built into our figuring through the base that we have used. There is no additional allowance for it.

JOURNO: Assuming that the bottom line is what goes in the Opposition package, on which groups in the community would be the worst affected by the package? The Opposition’s argument has been that all groups will benefit to some extent. Can you tell that pensioners with savings will be hurt, that families with two children ...?

WILLIS: I have given you an indication of the size of the hole by referring to how it would equate in the compensation area. Now of course the Opposition might decide to look after all those people, but cut its tax cuts. That would be a matter for it to decide, obviously.

We don’t know what they’d do. But we do know that whichever way they go, they have an immense problem because either you cut the compensation by $4 billion somewhere, and it’s a very large amount to find, or alternatively you drop your bottom line and you face the substantial economic consequences of doing that.

JOURNO: How sustained do you think a lot of these impacts, like increasing interest rates would be, given the Opposition’s claims they might only last for 12 months?

WILLIS: I know they’ve claimed that all along, and I see no reason to believe that that was so. Now I guess one has to say this: that the more sever the economic environment in which they introduce the tax, the less likely it is that it will be built into the future. So if you

adopt a really tough macroeconomic policy at the same time as you introduce it, you may well

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ensure there is little or no flow-on to future years. But insofar as you don’t really tighten and allow only a partial tightening of fiscal policy, or monetary policy or both, then of course you run the risk of part of the inflation impost being built in. That’s particularly so in the context of having no wages policy, which the Opposition totally would not have. They basically said

’we would just de-regulate the markets and leave it at that’, and no Accord to make any arrangements with the trade union movement; and also in the context where it is highly likely that most wage and salary earners will be worse off as a result of this package, then you would be very likely to have an environment which if it were at all possible, economically, to do so, wage claims would be made to try to achieve that compensation. So I believe it is very likely indeed in the context of a budgetary policy relaxation of $5 billion, no wages policy, and compensation which is inadequate to wage and salary in the households, that there would be most likely substantial wage claims and the likelihood of that inflation impact being built into future years and becoming a permanent feature.

JOURNO: Mr Willis, on the day that the employment outcome in scenario C .. doesn’t include the GST, yet the Government has used the inflation number and the contraction in real wages in scenario C as a basis for attacking the outcome. So, you can’t have it both ways, can you?

WILLIS: I can to this extent. It is pointed out that scenario C does involve the real wage reduction over times, so if they want to hang on to that analysis, then you’ve got to hang onto the fact that foreign debt - 54% of GDP in the year 2000 - and real wages have been reduced. But in the early years, it starts off with assumptions about underlying inflation rates of up to 7.7 percent This is without any GST, Now I think if that’s what their assumptions are about how inflation would be in the first couple of years under a Hewson Government, then we are certainly entitled to use them.

JOURNO: The Prime Minister has indicated since we met you last that he thinks an economic statement may very well be on the cards. What sort of timing would the Government be thinking about? Have you had any sort of discussion on this? If not, when

would you start thinking about it? And what would such a statement cover, both industry policy and wider policy?

WILLIS: As I mentioned to you last week, we are doing a review of the budget forecasts and that that review has commenced and will be concluded by mid-January. We will probably have some indications of where that’s headed well before mid-January. We have, in the course of considering that review, had the view that if it was to reach a conclusion that the budget forecast for economic and employment growth were likely to be significantly undershot, that is we were likely to do significantly less than the budget forecasts, then we would give serious consideration to taking further steps to try to ensure that we maintain the thrust of growth which was very much built into the budget forecasts, particularly in the second half of the year. I have discussed that point with the Prime Minister who agrees absolutely with the view that in those circumstances we would need to take action to try to restore the growth to something of the kind which was forecast in the budget.

JOURNO: So are you actually suggesting that there’s a risk, do you think, looking at the evidence so far, there is a considerable risk of undershooting?

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WILLIS: Well there is obviously some risk in the sense that we have had a much greater worsening of the drought than was forecast and also as most of you would be aware, there are increasing indications of the world economy slowing down, that is that the rate of growth next year is going to be less than was previously forecast; and that in those circumstances the risk of undershooting the budget target is obviously increased.

JOURNO: Would you be prepared to add to the deficit to achieve that?

WILLIS: I’m not going to make any comments about what kind of policy initiatives we might take in those circumstances. I’m merely indicating that in those circumstances we would give serious consideration to making adjustments to policy to make the recovery more certain than it would otherwise appear to be the case.

JOURNO: Do those adjustments apply to monetary policy at all?

WILLIS: I ’ve got no comments to make on what areas of policy.

JOURNO: When did you and the Prime Minister come to these conclusions about the risk of undershooting? I seem to remember the Prime Minister has been talking about some budget forecasts for employment being on target, relatively recently I think?

WILLIS: Obviously since the national accounts, there have been some discussions about the outlook for the rest of the year and it’s in those circumstances that those discussions have taken place.

JOURNO: (inaudible)

WILLIS: It depends on what that review of the forecast comes up with. We are indicating a preparedness to make policy adjustments in the circumstance in which we are not going to achieve, if that is the case, the kind of recovery which we were looking at in the budget. Now, bear in mind that in the second half of the year the budget was really quite bullish about economic and employment growth. It basically described a picture through the year in which employment would decline by about 100,000 in the first half of the year, but then increased by 100,000 in the second half of the year. So far this year since June, we’ve had a fall in employment of about 56,000, not 100,000. We’ve had wild gyrations month-by­ month but at the latest point, about a 56,000 reduction. So, it’s possible that we would have less decline in employment than was forecast in the budget. But we would be more concerned

about the outlook for next year and what was likely to happen to employment growth in 1992, than looking back to see whether we’d made any minor gains in the reduced rate of employment growth in the latter half of 1991.

JOURNO: In terms of employment, the budget is in fact on track?

WILLIS: In terms of the forecasts that were made in the budget, there is not widely or at all out of line with the forecasts. Indeed, one could say on the basis of the figures that the falls hadn’t been as great as were originally forecast. But I wouldn’t want to make too big a point about that. It’s the rate of growth in employment, the turnaround to growth, when it’s

going to be achieved, and the rate of it which obviously is of great concern to the Government

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and we are determined to get back to a sustainable rate of employment growth.

JOURNO: Might Mr Kelty, Mr Hewson and Mrs Kimer be more accurate in their assessments of the economy than you earlier thought?

WILLIS: I think there have been all sorts of estimates made about economic and employment growth. We’ll make our judgements about that when we see what comes out of the review.

JOURNO: (inaudible)

WILLIS: I’m conceding it’s possible that we would be less likely to reach the budget forecasts without a change of policy and that appeared to be the case at the time of the budget.

JOURNO: ... be the same whether Bob Hawke or Paul Keating is in the Prime Minister’s job?

WILLIS: I’m not going to comment on a question like that

JOURNO: Would you expect to remain Treasurer if there’s a change of leadership?

WILLIS: You better ask whoever the leader might be.

JOURNO: Do you think that there’s any obligation on senior Ministers to play a role now, in trying to resolve the leadership impasse in the Labor Party, and would you be willing to play such a role?

WILLIS: I don’t really want to discuss the leadership issue. I think there has been more than enough said about that in the last few days, and I don’t think anything I say is going to add to the weight of knowledge on the subject.

JOURNO: Do you agree that there is an impasse that must be resolved fairly soon?

WILLIS: I think everyone would like to see a clear picture emerge.

JOURNO: How will that be done?

WILLIS: I don’t want to comment any further about that.

JOURNO: Do you have any comments on the decision of Fairfax receivers to award the bid to Tourang?

WILLIS: That’s a matter for the receivers. Our role was simply to consider those bids which involved foreign investment implications. My predecessor approved the O’Reilly bid but knocked back the Tourang bid. That was re-structured and came forward to me as a re­ structured bid with a significantly reduced foreign investment component, down from roughly

40 percent to 25 percent; and in those circumstances I approved the bid under Foreign Investment Policy. The decision of the receiver is obviously one that he makes on commercial

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grounds.

JOURNO: Is it completely out of the Federal Government’s hands now?

WILLIS: Yes. It’s completely out of the Federal Government’s hands now.

JOURNO: Conrad Black was a little critical about the process leading up to that last week. Would you have any response to that?

WILLIS: I saw his remarks. They didn’t help me in considering the Tourang re­ structured bid, I might say, but I tried to put those out of my mind and put it down to some frustration on his part that it might have been better that he hadn’t bothered to make such inappropriate comments.

JOURNO: If we could just talk about the economic outlook again. If you did make this decision about budget forecasts looking a bit iffy, and that the Government had to do something to address this problem of growth, when would we know about what your decision was?

WILLIS: As I’ve already said, we would release the review of the forecasts when they were finalised which would probably in mid to late January. So, you would know what our revised forecasts were at that time. I can’t say at this stage if we intended to take some remedial action, whether we’d be in a position to make any announcement about that at that stage, or whether it would be a little later.

JOURNO: ... the Opposition over this Fightback package. You working with a major handicap at the moment. How much credibility do you think we can give you when the Government can’t decide the leadership?

WILLIS: That’s a matter for you to make up your own mind about, I guess. What I’ve said to you today stands in its own right, it has nothing to do with leadership issues. Whoever was the leader of the Labor Party, much the same sorts of things were being said by the

Treasurer in these circumstances, and I believe that you should be accepting this analysis as a very objective analysis of the Opposition’s package and one which will stand analysis. I don’t see that your considerations of it should hinge in any way on what you think about the leadership issue.

JOURNO: Do you think it’s possible that the leadership tensions in the Party will affect the reconsideration of policy that you’ve told about?

WILLIS: If there was a change of leader, there may be a slightly different approach, I don’t know.

JOURNO: Even if there is not a change of leader, won’t it feed into the process?

WILLIS: What I’m saying to you is that I, as Treasurer, and the Prime Minister have discussed this matter and have made the decision that if the circumstances warrant, and we believe that there could well be a case that they do, then we will be prepared to adjust policy

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to ensure a higher rate of economic and employment growth, that would otherwise have occurred. Now, that stands.

JOURNO: Those circumstances include more than adjusted figures, don’t they? They include the pressures now on the Prime Minister?

WILLIS: They are based on the concerns that we have that the budget forecasts may not be delivered. If they are not to be delivered, and as I said before they were quite bullish about recovery in the early part of 1992. If that’s not going to happen then we obviously would be concerned about a continuance of slow growth and perhaps continuing rise in unemployment. We will take appropriate action to prevent that happening.

JOURNO: ... it was very much a ’hold your nerve, hold the line statement’?

WILLIS: That’s right.

JOURNO: Now all of a sudden you’re talking about changes to ... deal with the fact that you might undershoot budget forecasts. The only thing that’s changed in that time is that the Prime Minister has come under more pressure?

WILLIS: No. That’s not true.

JOURNO: Last week when you spoke to us, you were virtually ruling out a change except at the very, very margin. You’ve got a quite different line this week and the national accounts hadn’t been in that intervening time?

WILLIS: I’m not walking away from anything I said about the national accounts. I said to you last week, I recall it quite clearly, that if you looked at the average figure of the three measures, rather than the income based figures, then the picture was a little more encouraging and a better picture than was available by looking at the income based figures; and that in fact it wasn’t too far out of the ball-park of which the Government had been contemplating at the time of the budget I said all that and I adhere to that But we’re looking further ahead. Now I’ve been the Treasurer for just over one week. In that time I ’ve had discussions with various relevant people and the views that I’m expressing to you now result from considerations that

I’ve had in that week.

JOURNO: It seems that they’re different from the views you expressed to us here just a week ago?

WILLIS: No, I don’t agree that they’re any different in terms of the national accounts at all.

JOURNO: No. In terms of policy. You had a different view on policy and policy changes then to now?

WILLIS: No. I didn’t have a different view on policy. I said that there was no reason at that stage to believe that there was likely to be any dramatic change in the budget forecasts. What I’m saying to you now is a result of discussions that I’ve had, is that it’s possible that

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we may not deliver the budget forecasts, and if that is to be the case, then we’ll make appropriate changes to policy to try to remedy that situation.

JOURNO: (inaudible)

WILLIS: I don’t think that’s a matter for me to elaborate on.

JOURNO: Is it too late to reverse the Medicare co-payment decision and is it irresponsible to speculate on reversing it?

WILLIS: I’ve seen the comments that have been made about that. I have also seen comments that there’s been a substantial move away from bulk-billing as a result of the co­ payment My understanding is that at this stage there is no indication of any substantive move away from it at all. But it is very early days and probably we’ll need more experience of the co-payment to know whether that was the case. We always said we’d monitor the co-payment

to analyse its impact. The Government made it quite clear that it wished to see bulk-billing maintained as a major means by which people particularly in respect of GP services were able to have their bills applied to them. And we would therefore not want to see the co-payment

have a detrimental affect in relation to bulk-billing. So far there’s no indication that it is having an effect.

JOURNO: In these discussions on growth, and the budget forecast, and the possibility of a package, were they initiated by you, or were they initiated by the Prime Minister?

WILLIS: I don’t think that matters.

JOURNO: Mr Willis, are you laying the groundwork today, for the Government’s new policy package?

WILLIS: No, I’m just giving you an honest statement about what our intentions are, that’s all.

JOURNO: What’s it concerning, Mr Willis? Do you fear that Australia could follow the U.S. economy and go for this so called, double dip, or are you looking further out to 92/93?

WILLIS: Well, I would be concerned if the rate of economic growth that we originally were looking at for 1992 was likely not to be delivered in any substantial way. Particularly, in relation to employment. And, we would therefore, responsibly be prepared, and I certainly, as Treasurer, would be prepared to take appropriate action to try to ensure that we did generate

that economic growth and employment growth. But, in doing so, can I just make this absolutely clear, that I would not in any way, be walking away from the need to maintain various other economic objectives. In particular, to lock in the low inflation achievement which has been a marked development of recent times, and I would not be wanting to do anything which would see us go back to some kind of inflationary growth. That’s not our intention at all. We want to achieve a sustainable rate of economic and employment growth, which means sustainable in terms of maintaining a low inflation rate, and also, of course, in terms of the balance of payments.

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JOURNO: What level of employment growth would threaten sustainable inflation?

WILLIS: I don’t want to make an off the cuff statement about that, at the present time.

JOURNO: Is Dr Hewson right, in saying that we are in danger of moving into a rolling, a recession which there is not a prospect of general recovery in all sectors of the economy?

WILLIS: I think, it’s again too early to make those kind of comments. There are obviously, areas in which growth is occurring at the present time, and provided the growth in the September quarter, private consumption moved up relatively strongly, the housing area is obviously improving. We all know investment is very flat, and we suffered from a reduced

investment in stocks. Now, the reduction in stocks is not something that can go on. So, one would not expect that to have the same detrimental affect on growth in future quarters. But, investment clearly remains at a very low level, and one can’t expect it to become a sort of immediate, leading factor in the recovery, but one would like to see prospects for recovery in investment down the track, and if that’s not coming, then that is a matter of concern.

JOURNO: Is the political uncertainty a contributing factor to lack of confidence among investors, particularly at this point in the economic recovery?

WILLIS: Well, it shouldn’t be. If that is a factor which is in people’s minds, I suppose, given all the publicity it gets from you people, I guess that’s understandable. It really doesn’t have any relationship to the fact that the Government has been a very responsible economic manager and its certainly been clear in its long term objectives, medium and long term objectives, which I believe are very conducive to the long term benefit of the Australian economy. So, that we’ve made it quite clear where we are headed. The problem is that we’ve too far of a downturn and we are obviously, not having a very rapid upturn. So, it’s trying to get back onto that sustainable growth path which is the current economic problem. But, can I also say, that investors should be infinitely more worried, infinitely more worried, about an Opposition economic policy being put in place, because that is patently not what Australia needs at the present time. We do not need a substantial tightening of fiscal policy, for starters, followed by a major relaxation with an inflationary impact and a massive tightening of monetary policy. It’s the last thing we need.

JOURNO: (inaudible) and help business confidence if there were a Caucus vote on the leadership this week?

WILLIS: You would have to ask businessmen that. I don’t have any comment to make on that.

JOURNO: Can you give us some clues about what appropriate action could be taken to improve economic growth?

WILLIS: No, I’m not going to go into policy details. '}

JOURNO: But, it does require a more expansionary policy.

I don’t have any comment to make about any policy details. \ WILLIS:

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WILLIS: Mr Willis, can you just answer one question on a couple of things? With your policy review, are you planning to try and get the economy back onto the trajectory that it was planned from the Budget, or do you believe that the outlook for the economy with the drought, and the international outlook being much more questionable, that there might be a more

significant role that Government has to play to kick start the economy to achieve sufficient levels of economic growth to reduce unemployment?

WILLIS: It depends what comes out of the review. I mean, if the review showed a very substantial shortfall on the budget outcome, it might require a very different reaction from us, and if it showed a moderate shortfall, if it only shows a very slight variation, there may not any need for us to take any substantial change. But, that’s a matter for us to assess on the basis of the information that we have available to us. Now, of course, these are all economic

forecasts which are notoriously inaccurate, as we’ve been able to find out pretty well in the last couple of years, and one has to make one’s own assessment at the end of the day. I mean, the Government has to make its own political assessments of those economic forecasts. Obviously, they are a major input to our thinking, and we would not be taking any change in policy without full consideration of those forecasts.

JOURNO: Forecasts aside. Isn’t the Government, at the moment, under a great deal of pressure from its own backbench, as well as other people, for some sort of policy change?

WILLIS: I see various headlines, here and there, about people calling for change of one sort or another. I guess, in the current circumstances, which aren’t just economic, one can understand some of that

JOURNO: Mr Willis, is it your intention to release the review as soon as it is completed in mid to late January, and then decide on whatever policy response there might be, in the light of your own considerations, union, employer, etc, response to it? Or to do the whole thing in one hit?

WILLIS: Well, that’s something we would have to see. I mean, we’d probably get some forewarning of what the outcome was likely to be before it was finally made available to us, and before it was released. So, without having those forecasts available to us, obviously, we’ll do some preliminary thinking, and undertake some preliminary work, but we wouldn’t

announce, or decide to do anything until we were fairly sure where things were headed.

JOURNO: Mr Willis, given your earlier answer saying that investors shouldn’t worry too much about the political turmoil going on. Does that imply that you believe that Mr Keating would substantially the same economic policies as you and Mr Hawke now?

WILLIS: Well, I don’t want to comment on what Mr Keating may or may not do. You should ask Paul those sort of questions.

JOURNO: In that case, surely, your answer earlier about investors shouldn’t be worried about this, is a bit unrealistic. Clearly, if there is uncertainty they will be concerned.

WILLIS: I wouldn’t expect that there would be any major differences in economic policy, whoever was leader of the Australian Labor Party, in current circumstances. Everyone

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in the Party, everyone in the Caucus, in the Government, wants to get back to economic and employment growth. We want to do so in a responsible way, in a sustainable way, and I wouldn’t think that there would be any major differences of view anywhere within the Government or the Caucus, in that respect.

JOURNO: We’ve had major differences expressed in the lead up to the Budget. We had papers from the Left coming out putting a number of alternative ways the Government could try and kick start the economy. We had quite a lively debate going on, surely then. Doesn’t that imply that there are real differences?

WILLIS: No differences about objectives. I don’t think, at the end of the day, a great deal of difference about policies that should be pursued. We had an employment policy of Caucus which recommended various proposals, most of which were being undertaken by the Government, or were announced in the course of the November Economic Statement by the Prime Minister. I think that’s an indication of the responsible nature of Caucus, they were putting that forward in the context of believing that Budget forecasts were pretty much on

track. I’m sure that if they thought there was some significant undershooting likely there would be further proposals for change. The Government, in those circumstances, will be proposing change.

JOURNO: Mr Willis, how much slower do you think growth will be this year? Do you think it might be say, 1 percent versus the one and a half in the Budget, or even less than one?

JOURNO: I’m not going to comment on that. There isn’t any point in me now starting to - conjecture about what the forecast might be.

JOURNO: Mr Willis, while you’re having this major review of policy, don’t you think it’s appropriate that the Reserve Bank Board should come back from holidays and meet in January?

WILLIS: Well, the Reserve Bank isn’t on holidays.

JOURNO: The Board is.

WILLIS: The Board has a meeting every month and discusses matters which are raised with it. The Board representatives have a discussion with the Bank officials, the senior Bank officials, and they listen to economic analysis from the Board, and put their ideas to the senior managers. The Reserve Bank itself, I think, is a very fine institution and one which has its finger on the pulse. Its shown lots of preparedness to change policy, and in its most recent meeting, where it didn’t change policy, about which I’ve since had a briefing, it seems to me

that they showed a fairly acute sense of the economic realities of our situation.

JOURNO: I’m not questioning their judgement. I’m just saying that at such a critical time in the economy when you’re having a major review, the Reserve Bank Board won’t be meeting for 2 months, until February.

WILLIS: Well, I think, they made a decision that they could, if they so decided, meet in mid January, but I don’t expect that to happen. ·>

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JOURNO: What do you expect to happen to employment, Treasurer, in the second half of the year? Your budget forecast was an assumption that growth of 100,000. On present settings, without this economic statement in the New Year, what would be outcome for

employment growth, do you expect?

WILLIS: I’m not going conjecture about what the forecast might be. I’ve said that several times. We’re waiting to get the experts analysis of what might happen.

JOURNO: Something happened to alarm you, and cause you to have the review. You must have had some indication that things weren’t looking too good.

WILLIS: That is not true. That is absolutely not true. What is happening now, is that there is a sort of mid year review of the budget forecasts. Now, that’s always, as far as I’m aware, always been undertaken, certainly for the last 7 years, been undertaken. So, that’s happening in a normal way, to have a mid year review of the budget forecasts. What is new, is that we have said that we would publish the results of that review. W e’ve not done that before, and last year we did announce the revised budget forecasts at the end of May, when Paul Keating, as the Treasurer, just moments before he made the leadership challenge, announced those forecasts to all of you. Now, it is our intention to make those forecasts available at the mid year now, so that there is available to the nation, not just a once a year official view of how the economy is going, but to do that at the half way mark as well, and maybe subsequendy as well, later in the year.

JOURNO: Do you agree with Simon Crean, that the Government should stop concentrating so heavily on trying to topple the ’Fightback’ package and start coming out with some new policies immediately in the New Year?

WILLIS: I can assure you I’m not spending all my time solely on worrying about the ’Fightback’ proposals. We obviously, are concerned to do many other things.

JOURNO: You just don’t seem to have made any great dent in them so far.

WILLIS: Well, I thought what I said today was pretty good, really.

JOURNO: ... micro economic forecasting unit, Dr Hemy’s unit

WILLIS: No.

JOURNO: That’s still to come is it?

WILLIS: That will come in the next day or so.

JOURNO: There has been speculation about your support for the Prime Minister. Does the Prime Minister enjoy your confidence?

WILLIS: Does the Prime Minister enjoy my confidence? Of course so.

JOURNO: Do you think he enjoys the confidence of the majority of Caucus?

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WILLIS: I’m not going to answer for the majority of Caucus. That’s a matter about which events will decide.

JOURNO: ... a change of leader. Is that a concession that it’s possible or even likely?

WILLIS: I’ve got no comment to make about whether there is likely to be a change of leader or not

JOURNO: But you have to concede that the leadership issue ...

WILLIS: No, I don’t have to concede anything. I absolutely don’t have to and I’m not going to.

JOURNO: Were you invited to join your six colleagues who had those well publicised meetings last Wednesday and Thursday?

WILLIS: I wasn’t invited and in fact I was after, not because of any traumas you put me through last Monday, but I spent the next day in bed and was feeling pretty terrible on Wednesday and Thursday and I think they left me alone for that reason.

JOURNO: Were you glad?

WILLIS: I don’t really have a comment to make about that.

JOURNO: ... if and when he becomes leader. Do you know anything about that?

WILLIS: No.

JOURNO: It would be increasingly difficult for the Government to have even very detailed arguments about the Fightback package accepted because in the public mind, it’s now become something that’s accepted as a good package, and something that’s been a useful contribution to the debate?

WILLIS: It’s certainly been a contribution to the debate, I don’t deny that at all. Obviously a very large piece of work which looked at the face of it to be very substantial. But in fact on analysis it has been shown to be a very detrimental package for the Australian economy and one which would certainly not be to the advantage of the Australian people if it

was brought in. Now that would be absolutely demonstrated tomorrow or the next day when we show you the distributional impact

JOURNO: But it’s too late.

WILLIS: It’s not all too late. This is the Opposition’s election manifesto. This is effectively what they’re going to put at the next election. So, they’ve told us about it not at the last month before the election but something near 18 months before the next election. And we’ve got all that time to demonstrate what’s wrong with it. Now, what we are putting to you

today demonstrates that economically this is a package which is absolutely quite disastrous. But in terms of its impact on the pockets of people, and what I’ll have to say to you tomorrow,

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is also very, very relevant. And I think when people see the full package for what it is, that there will be an enormous lack of excitement about it and recognition of the fact that whatever attractions it might have had in the first week or two, that they have well and truly disappeared.

JOURNO: Are you going to have a press conference tomorrow?

WILLIS: I don’t want to make this a daily or a regular event, but I do think it’s incumbent upon me to produce to you the distributional analysis which I hope to do tomorrow.

JOURNO: Do you see any possibility of GST gains from the black economy? You are saying that your expenditure forecasts, the Treasury’s expenditure forecasts already include spending and consumption as a result of the black economy. What size of black economy is the Treasury guessing?

WILLIS: It’s not a matter of guessing. You simply apply insofar as there is expenditure and all the elements of the economy which are subject to the GST, then you know what that expenditure is roughly going to be, and the tax applies on that area. So, where the incomes that are spent in that area are legitimately earned incomes, or quite illegitimately earned incomes, the tax will be there. Now it’s already in our base. It’s already in our figures insofar as there is any such impact. Of course there would have already been an impact anyway because insofar as crooks, drug dealers whatever spent money on goods which were subject to the wholesale sales tax and it was in there as well. But it’s in our base and there is no need for any further addition.

JOURNO: (inaudible)

WILLIS:

JOURNO:

WILLIS:

JOURNO:

Yes. That’s right. Same thing.

Well how big is it?

No matter how big it is, it’s in our figures.

Are you saying it’s bigger or smaller than the Oppositions?

WILLIS: I’m not commenting on the Opposition’s estimate because it’s just guesstimates as to how big the black economy is. What we are saying is that you can’t add anything else in once you’ve taken the whole of the expenditure area which is subject to the GST, because whether that money was legitimately or illegitimately obtained, to spend in that area - once it’s

spent it’s subject to the tax.

JOURNO: ... policy change?

WILLIS: There’s been no discussion with Cabinet. I missed part of today’s Cabinet, but I’m not aware that any such thing was said.

JOURNO: (inaudible)

WILLIS: I think that’s a question you should address to the Prime Minister.

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JOURNO: (inaudible)

WILLIS: Obviously we’re not going to make decisions without talking to Cabinet.

JOURNO: (inaudible)

WILLIS: I’ve put the basis upon which any such change would take place. Obviously we’ll brief Cabinet about any changes to the budget forecasts before we tell the rest of the nation and get their assessments about what changes need to be taken if any.

JOURNO: ... rural Australia has had the worst income situation for 40 years. How is this going to influence the review of policy? The real problem with the national accounts was the farm sector.

WILLIS: That’s obviously a very important element in consideration. That was a major detrimental element in the September quarter national accounts. There’s likely to be a downer on the whole year, GDP growth, obviously that will now be fed into all the forecasts and we’ll have to wait and see what comes out of that.

ENDS

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