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Transcript of interview by Haydn Sargent Radio 4BC Brisbane



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TREASURER 4 9 PRESS

RELEASE NO.

EMBARGO

TRANSCRIPT OF INTERVIEW BY HAYDN SARGENT RADIO 4BC BRISBANE WITH THE TREASURER, PAUL KEATING, ON WEDNESDAY, 13th MARCH,1991.

SARGENT: Good morning Mr. Keating.

KEATING: That's alright.

S A R G E N T : Mr. Keating when Jim Cairns hacked away at tariffs on

textiles, clothing and shoes, a lot of people went out of

business overnight. Factories closed, people lost jobs but the wholesalers, the importers and the retailers made a killing.

What makes you think that chopping down the tariffs on textiles, clothing and shoes will make a s i g n i f i c a n t difference to

Australia in terms of its international competitiveness?

KEATING: Well there were two things at the time I think Haydn

which confused that. The Australian dollar in 1973/74 was highly over-valued which made imports very very cheap, and with the

tariff cuts which occurred sort of instantaneously we saw a lot of imports flood into Australia from those two things.

W e ' v e now got most importantly a competitive exchange rate and secondly this is a phased reduction in tariffs. This is going to finally end up at these levels in the year 2000. In 1997 in some

cases and the year 2000. so that what we will see is an improved

e f f i c i e n c y from industry and we'll see imports putting

competitive downward pressure on local p r i c e s .

You see, people don’t, ordinary people are not quite sure what a tariff means. It's actually a protection tax.

SARGENT: Yes.

KEATING: It's a protection tax. So, if you take clothing and

footwear that tax is going to be down from 35% to 12%. So a

shirt which is S 30 now will be reduced by about $8. Or a $50

pair of shoes would go down by about $18. In other words, and

that'b at the end of the section, that's at the end of the phase

down -

KEATING: Good morning Haydn . COMMONWEALTH

PARLIAMENTARY LIBRARY MICAH S A R G E N T : Thanks for your t i m e .

2

SARGENT: See, I would argue that that's the theory, the fact is that the market is so used to paying a certain price for a

product that the importer, wholesaler and retailer knows that he can keep getting away either with that price or a price fairly

close to it.

KEATING: Yes. Well I think that the day is more competitive now than it was, and 1 think we're seeing traded goods , traded

imports, traded goods, coming, household goods in a way now that we didn't see in the 1970's . So I think the responsiveness, the responses in the market place to a shift like this from imports, that is the response from imports and the response from people who are trying to get a market for the imports will keep the

market competitive so that as these reductions in tariffs occur the public will get the benefit and not just as you s a y , fatter

prices for the existing wholesalers.

SARGENT: Now in the car industry, what do you predict is going

to happen there? Are the car manufacturers going to pack up and say, " now listen now that the tariffs are gone we'll just send

them straight from Japan and South Korea".

KEATING: No. Because I think, you see it's very interesting .

The first country almost that Japan made cars outside of Japan was Australia.

SARGENT: Right.

KEATING: Made them here much earlier. I mean fifteen years ago. They are only just making them now in Bri t a i n and the United

s t a t e s . I d o n ' t t h i n k t h e J a p a n e s e w o u l d pac k t h e i r

manufacturing up. I don't think General Motors will and I don't think Ford will. Now they’re integrated car plants.

The value for us is not only do Australians pick up a car $2000

or $3000 cheaper by reducing the tariffs and making the domestic companies become more efficient. But when they actually get more efficient the world market opens up to the m . So instead of us

just making the so called Australian car , I mean we've always

been in a sense conned by the notion that we ought to have the

Australian c ar. Well the problem about the Australian car is

that the only people that want to buy it are the Australians. What we need is a car that someone else will buy.

SARGENT; Sure, and not many Australians want to buy it either.

KEATING: No, because the quality was low over the years and the price was too high now not many, y o u ' r e right, not many

Australians wanted to buy it. But if we actually get a car

industry which is competitive, then we're starting to open up, for instance like Ford now is producing those Capri sports cars for the United States market .

3 -

S A R G E N T ; A n d e e l L i n g t h e m f o r c h e a p e r t h a n t h e y s e l l i t in

A u s t r a l i a .

'KEATING: W e l l t h e y c o u l d be, I d o n ' t k n o w .

s a r g e n t : Yes, t h a t ' s a fact.

K E A T I N G : T h e f a c t of the m a t t e r is, t h a t c a m e f r o m a d e s i r e o n

t h e i r p a r t to p r o d u c e an i n t e r n a t i o n a l l y c o m p e t i t i v e v e h i c l e .

S A R G E N T : See, I t h i n k the a v e r a g e w o r k i n g b l o k e t h o u g h w o n d e r s if t h e r e m o v a l of t h e t a r i f f s i a d e s i g n e d t o m a k e t h e c a r

i n d u s t r y m o r e c o m p e t i t i v e w i t h J a p a n , A m e r i c a w h e r e v e r . D o e s n ' t it a l s o m e a n t h a t h i s s t a n d a r d o f l i v i n g or hie w o r k i n g

conditions have got to change?

KEATING: Well, put it this way Haydn. The first thing is, if

the prices go down for the things he must buy like clothes,

shoes, cars, his living standard goes up. It automatically goes up because less of any Australian's disposable income is spent buying the things they need.

This has always been the shocking pernicious thing about tariffs, it's always been sold on the baeis that it's the way to keep

Australian workers in jobs. No one told the other half of the

story. That was that most Australians had to pay the protection tax to do it.

SARGENT: Sure, but weren't we talking a couple of months ago

about the importance of trying to reduce the number of imports into Australia because of our, and I dare to use the wor d

"recession"7

KEATING: Yes, oh sure. But I mean understand this, this is the

long run change. I mean, you see the problem I've always got in

trying to sell this is letting the public see the long run

against the short changes.

SARGENT: Right.

k e a t i n g : The long run change was started with the opening up of

the exchange rate. The abolition of the exchange controls, the freeing up of the financial markets, the reduction in tariff, that ie, it opened Australia to international competition. That is the only way of h a v i n g an i n t e r n a t i o n a l l y competitive

industry. Which in the end is the only way to cut the current

account deficit, which in the end is the only way to cut imports.

4

KEATING: (Contd) Now laid over the top of that are these big

terms of trade swings, commodity price swings - Whe a t , Wool, Minerals up in 87/88, down in 89/90. 87/88 gave us a b o o m . I

had to lift interest rates to chop the top off that, and the

public are confused about the shorter run things as opposed to the longer run picture which is our saving grace. So what the

Government was saying yesterday H a y d n , is look we've got a

recession sure, but let's remember this, we'll be out of the

recession before long but we must not be out of the long term

changes. So yesterday's statement was about keeping true to that path.

SARGENTi I think there are probably two res p o n s e s to that

statement you've just made. The first is that people are going to say okay, if you're talking long term, why didn't you do it six

or seven years ago?

KEATING: We did. We started then, but the point is, i mean

we've taken some tariffs from 140% down to 15%.

SARGENT: Well you see a lot of people are throwing their hands up saying, "hey this is great". So if it is good, why wasn't it

done sooner 7

KEATING: Because it's got to be phased. You see this phasing

started in 1988. This started in the package of 1987/88 and the phasing will complete in 1997 or the year 2000 as a result of the second stage announced yesterday,

In other words if you want to take Australia from the poison of protection when we took the view that we could isolate ourselves from the rest of the world, stick a barrier around Australia and kid we were wealthy, debunking that view means you've got take

industries off this very high and seductive protection. it has to be phased. If you don't phase it you end up with a Jim Cairns

effect, the one you mentioned at the front.

If you do it overnight, then these industries don't have a chance to adjust, they just get massacred by imports, and that would be a tragedy and we're not in that. That's why a phased reduction with an economy which has got many more development opportunities about it with high rates of growth is the fair context to phase

tariffs down.

SARGENT: The other point you made a moment ago was that we're

coming out the recession. Now you say the reforms of yesterday's statement are long term, you say we're coming out of the

recession and I think a lot of people look around and say, when and how?

5

k e a t i n g i Well as sure as I stand here talking to you, and I'm

standing not sitting, we will be out of the recession. We will

come out of the recession. It'll come out for all the usual

reasons. Interest rates ace now down six percentage points. The stock cycle is changing. We're starting, companies are starting to rebuild, use production to rebuild stocks which they ran down last year. Housing is starting to turn.

SARGENTi But wait a minute. Do you find it disappointing if

people look at you and say, Paul you've said this a number of

times, that we're on target, that everything and just lurch into heavier treacle.

KEATING; well let me just make this clear to you Haydn, we tried to avoid a recession as I've said, but the fact of the matter is

that we've got one. But one thing is certain, we will soon,

relatively I think in the medium term, be without one.

SARGENT* What's pulling us out of it then?

KEATINCi Well the things I say. Six percentage points shift.

See I moved interest rates down in January 1990, that's thirteen months ago.

SARGENTi Right.

KEATING! Fourteen months ago. Now at the time I was attacked

for that by Dr. Heweon who said I was doing the political thing, not the economic thing. He's now saying, why didn't you wait?

Why did you wait so long? How come t h a t w e ' r e now into

recession.

when I actually reduced them he attacked me for them.

SARGENTi But see Dr. Hewson's philosophies are fundamentally the same as yours and also your advisors in the Treasury because

that's the particular current economic philosophy of the time. Isn't it?

KEATING! No, well at the time we were ahead of the game, we

reduced interest rates in January 1990 and six percentage point reduction. See remember this, cash rates were 18%, official rates were 18% and bills were about the same. Today bill rates

are 11.5%, 11.6%.

SARGENT! Right.

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K E A T I N G ; So they are down six to seven percentage points, and it is that which is now as surely ae the high interest rates were

imperceptibly and inviaibly creating the slow down in the economy the low i n t e r e s t rates now imperceptibly and invisibly are m o v i n g ue into a recovery.

SARGENT: One of the features of the Prime Minister'a statement yesterday was almost an element of apology and h o n estly that

said, "Hey we're sorry about the recession, we're sorry about the increasing unemployment, if we had had the insights a few years ago that we have now we would have done things differently". Was he speaking also on behalf of Paul Keating?

KEATING: Oh absolutely, sure.

SARGENTi W h a t would you have d o n e d i f f e r e n t l y ?

KEATING: Well you see he mentioned that in the context of the

1987 stock market crash. This is where part of the current

problem came from. The stock market crash of 19S7 was in terms

of the effect on the all ordinaries index and the Dow Jones and

the Nikkei index much larger than the crash of 1929. Therefore one could r e a s o n a b l y b e l i e v e t h e r e was an i n t e r n a t i o n a l

depression coming our way in the following year, as it came in

1930.

What the central banks around the world did, what Governments around the world did, let's not make the mistake of 1930. Let's keep monetary conditions relatively accommodating so that we won't have big wealth effects from corporate crashes, a la 1930.

Now we did that. We did it, Britain did it, the United States

did it, and most other countries did it. The result was we did

avoid a depression, but we got as a result a recession two years later or three years later. And that's why now the united

States, Britain, Canada and Australia are in a recession, because the more accommodating monetary conditions of 1987 and early 1988 promoted activity into 1988/89 which lead to us then lifting

interest rates to cap it.

S A R G E N T : Mr. Keating, the financial R e v i e w this morning says, and I think gives you a back-handed compliment, "Mr. Keating's wont to say the present Federal Government inherited a shambles of an economy, he and Mr. Hawke can rightly take credit for the

considerable gains already made in the long haul t o w a r d s reform but, yesterday's policy initiative shows some disappointing signs that its revolutionary zeal for the task ia waning". Are you running out of steam?

7

KEATING; Well that'a the Financial Review giving us a needle. And that'e fair enough, that's what newspapers are for. It makes sure you do more. But look I think the thing that we have to

focus on is the fact we had a closeted e c o n o m y riddled with

economic sclerosis. We had a fixed exchange rate. We had an

uncompetitive exchange rate, flooding imports into the place. We had a huge budget surplus, we had the profit share smashed to

pieces, investment falling apart, a m o u n t i n g current account deficit and a growing tendency towards debt.

Now we've had to free the place up in a structural sense, and

that's what yesterday's thing was about. What we want in the end are efficient industries, better industries, interesting jobs, more jobs but not just dull jobs, interesting jobs and a better current account, more productive capacity, lees reliance on

imports and therefore less debt.

We are only going to get that the one way Haydn, that'e the hard

way. Not cheap and easy, quick fixes, none of that, the hard

way. The sort of things that should have been done in 1965/66

about the time Robert Henries retired. That's when all this

should have been begun. it was begun twenty years late, by us in 1983. And that is why, I might say to you we get a little churlish with

our opponents who are now urging on us as are the newspapers,

more change, but who sat doggo for twenty years in the critical twenty years when it could have really made the difference.

SARGENTi Paul Keating thanks for your time.

KEATINGi Thanks very much Haydn.

SARGENT* All the best.

E & Ο E (Proof only)