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Transcipt of interview with Laura Tingle (the Australian)



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Deputy Leader of the Opposition

E&OE

TRANSCRIPT OF INTERVIEW WITH LAURA TINGLE (THE AUSTRALIAN) MONDAY, 18 FEBRUARY 1991

Q Just to start with - the Opposition, both you and

the Opposition Leader and the Finance spokesman, have all called for a mini budget. Now what would you like to see in that mini budget in specific terms and what should it be trying to achieve?

A Well we've said that in terms of economic policy generally that, you know, this is a last chance opportunity for the Government. They ought to take a pretty broad swipe at some of our problems. So we'd like to see a fairly comprehensive economic

statement from them covering both the macro issues and the micro issues, if you like. Certainly on the structural reform we've said to them (inaudible) like to announce they're going to take up the goods and services tax proposal and they'd have our

support for that. You're looking at something like 12 months to get those changes into place in the tax system. As you know, we've done a fair bit of work. If they'd like to start that on 12 March that'd be good. So we've certainly pressed the structural reform issues and you know the list - tariff reforms, (inaudible), the question of waterfront reform. Senator Collins is going to be hearing a

fair bit more from us in the next few weeks. And then generally to go - you're asking specifically about fiscal policy - yes, we've said that we're concerned about the loosening of fiscal policy. And our view is that, you know, that's a lever they ought to be pulling. Tighter fiscal policy would provide some real benefits and it's one of the things that, one of the policy prescriptions -

levers - that they ought to be employing.

Q And what do you think they should be actually doing? They should be cutting spending, Commonwealth spending, further?

Parliament House, Canberra, A .C .T . 2600

COMMONWEALTH PARLIAMENTARY LIBRARY MICAM

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A Well, there are a range of areas that we've

identified where they could be cutting expenditure. They are structural in themselves and I think that would provide some benefits. It's not new in the sense that, you know, philosophically there's a sort

of couple of parts to this. Philosophically, we've always favoured and pressed for smaller government. We think that if you can contract out services, if you can privatise government business enterprises,

if you can shift a lot of things into the private sector then that's just a more efficient, more productive way of doing things. And we know, you know, we've got low levels of productivity in the public sector. That is part of that response to the productivity problem and it can help us dealing with

inefficiency. It has the additional component, if you like, of being the macro policy response. And if one of the principal objectives of government policy is to stabilise external debt, as the Government itself has been saying, then they need to maintain a relatively tighter fiscal policy than what they've had in recent months.

Q Sure.

A So in fact we're really, in a sense, at the least

simply turning it back on the government and putting back their own proposition. If you go back to August - I mean, what we have said about a tighter fiscal policy against what's happened since August

is in fact simply repeating to the Government what they themselves said five months ago. In fact, I've got somewhere here - there's a section in the budget. If you take what they say themselves:

"While policies are in place to stabilise our external indebtedness and reduce our vulnerability, they will inevitably take time." This is part of a longer quote. "What is vital is that those policies, including maintenance of high levels of public sector saving, continue over the 1990s."

It's their own words.

Q Yes, I understand that. What they're arguing, of course, is that most of the deterioration is a cyclical factor. Whether you agree with that or not, do you believe that the cyclical element of it

should be offset to reach some target like the PSBR of zero, regardless of the impact that might have on the economy, or what would you say was the target for a mini budget in terms of expenditure cuts?

A Well, you know, the figure we've offered them is the $3 billion.

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That's the Economic Action Plan?

Yes. And my view about the $3 billion is that it's a pretty good starting point for the Government. They've got the tremendous political advantage of us having nailed our colours to that mast and if they pick up some of those proposals then they've got our bipartisan support. It really makes life very easy

for them.

So at this stage you're basically sticking to the spending cuts you've outlined in the EAP? For example, cutting out the dole after nine months.

Well, I mean, that's a structural thing as well. I mean, you're saying to people that there is a limit to the system - placing outer limits on that system.

And Australia does have, relative to the rest of the world, very long averages for people on the unemployment benefit.

But you'd be advocating that they just follow all those measures in the Economic Action Plan.

Oh yes, sure. Well, there are asset sales in there as well. You know, public debt interest savings.

Dr Hewson's outlined an ERG process that's going to start. Would that be sort of effectively reviewing those EAP policies or ...?

Well, those things are under fairly constant monitoring, I suppose. Jim Short has the general responsibility for that. But, I mean, the truth about the EAP is that it shows that it can be done.

And we did something that very few political parties have ever done, which is actually front up with the cuts in advance at the election so as to sort of overcome this business where governments in the past have turned up and opened the books on day one and

said, you know, "Things are much worse than we thought and now we're going to have to do X, Y and Z ." I think we've been very open about it and that exercise and the substantial nature of those cuts I

think establishes our bona fides on it.

But if I could just sort of ask, I mean, you've obviously got a sort of philosophical argument about smaller government. But what role do you think cutting expenditure at this point of the cycle would

play in the rebalancing of policies and how much impact do you think it would actually have on the economy to cut spending by that much?

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A Well, we know that there is a relationship. We know

that fiscal policy has various impacts on the economy as a whole. And we can go through all the academic works, if you like. I suppose the most recent example that's had a fair amount of public

exposure is that Murphy model, you know, that Des Moore had. And what that showed was that even with tax cuts and whatever in the package - and obviously I'm not endorsing Murphy per se for every

cent of it - but just to go through the exercise. It shows you that you can pick up some real benefits from a tighter fiscal policy. Even, for example, lower inflation over the longer term. In

particular, what it shows is that if you can tip something into that pool of national savings or take out less than what you're otherwise going to take then you can have a significant and useful effect on the level of interest rates. And I suppose a classic practical example of that was New Zealand. Ruth Richardson, you know, she was full of talk about cutting before the last election and she

actually delivered. And she's going to go further, apparently. But she got that immediate tradeoff, you know, to sustainably lower interest rates. And so, when we complained about high interest rates

being the outcome of a singular policy, one of the many things we've said is that if you also pull that fiscal lever you won't have the same heavy reliance upon monetary policy. And I think, you know, what

we've said has been perfectly reasonable and we've had a fair amount of support for it, as well. If you just keep using high interest rates you don't get the structural changes in the economy. They are

no substitute for the structural changes that need to be made - a point made by John Phillips and others.

Q So you don't think there's a concern that we still

don't know what impact cutting government spending would have on the level of economic activity in a recession as deep as we apparently have?

A Well, what we do know, though, are that there are

linkages through to interest rates that will be very positive for the economy and the experience is, and the modelling is, that that tightening of fiscal policy will, in fact, produce net benefits. We also

know, on the other side of the coin, if we keep failing to meet what is the Government's own target on trying to stabilise external debt then this country will resign itself to the sort of debt trap, that downward spiral, which has really characterised policy in the last few years.

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Now, we say you cannot continue to rack up the massive foreign debt that we have in this country. The recession was brought on to fix the current account deficit and it's still running at, I don't

know, 16, 17. The forecast was, what, 18. I don't know what the figure will finally be but I mean it's still running at a massive figure. And then, when inflation got back in September, Keating turns around and says, "Ah, the policy worked. It's fixed

inflation." That is just an absolute u-turn for him. He's been on the current account deficit as the primary object, as you well know, for policy for months - for what, 18 months or more. Then he

switches to inflation and now, of course, we have the latest figure showing, well, you know, really have we, you know, over the longer term dealt effectively with one of our chronic problems? And I think the answer, unfortunately, is no on that, as well. So fiscal policy, you know, fits into that

equation. That's what I'm saying.

Q So you'd say that as a starting point they should

cut, say, $3 billion off spending plus they should introduce a GST in the March 12 statement or announce that they're going to do that? So you're working on both sides of fiscal policy, if you like,

there. What sort of impact would the GST have? Would it be a good time to introduce a GST now?

A The point is that we ought to be introducing those

tax changes as soon as we possibly can. And Keating ought to stop his Question Time politicking and get on with it. Let me also say, I mean, we obviously would want the industrial relations changes and whatever in that statement.

Q Sure. Given your comments about savings and, as you say, these are things Keating's raised himself, what should the target be in terms of the immediate adjustment of fiscal policy? Should it be a net PSBR of zero and that the Commonwealth should be

striving to achieve an offset of what the States' position is?

A I must say I don't quite know what the States'

position now is. But I think the Government ought to set itself on a course which is to maintain that objective in front of it and ...

Q A net PSBR of zero?

Well, basically that's what it was. That was the budget time forecast and that was, they say, consistent with a stabilising of 2.5% of GDP. Yes, 2.5% of GDP. So, you ask me which direction they ought to be going? That is the direction they ought

to be going. And they ought to be pulling all stops out to try and achieve that on the basis of their own, of the standards they themselves set.

What would you be doing with the States? Would you be, given that several of them are in fairly dire circumstances, what would you be doing about those? Would you be trying to cut their spending back,

giving them some more room to borrow to offset their problems so they wouldn't put government charges up? What would you be doing to them?

I think the States need to be encouraged in making the structural changes. I mean, yes, you've got to keep the pressure on them, on their sort of recurrent spending. And, you know, we were disappointed with the result out of the Premiers' Conference earlier in the year and what we

said then has been vindicated by the passage of time. But I think with the States I'd be concentrating at this stage on, you know, if you're talking about what you're going to do on 12 March, I think its ... you'd better persuade the States to the structural reform process. The Prime Minister

says he's got a new era in Commonwealth-State relations in place. Certainly for the community at large, and I think it may well apply to some of the States, is that when you've got a recession on people are prepared to wear a bit more in the way of

structural change than they might otherwise would have, simply because they can see that we've got problems and we need a decent dose of medicine to, you know, to start to turn the situation around.

However, I mean, there are no easy solutions. No- one should suggest there are.

Well, how far advanced is your own review of tax policy at this point? (inaudible) that you're looking at it all again. When are we going to see some details on that?

Well, all in due course, I suppose.

I mean, for example, I mean the Government's obviously sort of started to sort of put the pressure on again about all of that today. But, I mean, is it, I think the original intention was to

release it at some stage this year, wasn't it?

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A We've never put a date on it. And I think we've

been wise politically not to be putting dates on it. But, I mean, I'm on the public record saying that we will say what we've got to say well in due course and you people (inaudible) an opportunity to

scrutinise what we're offering.

Q OK. Could I just move on to a couple of other

things?

A Yes, why not?

Q Well, monetary policy and independence for the Reserve Bank.

A Yes.

Q How would you see that working at the moment? Would

interest rates, do you think, be higher, lower or the same with a more independent central bank? I know, of course, there's a bit of inconsistency in the question. I recognise that.

A Well, look, you need to take a longer term about

this whole question of combating inflation. That is one of the problems that we have here with this whole question about the Reserve Bank and its independence. You know, if you just keep using

monetary policy as a sort of counter-cyclical thing then, you know, there's a real question mark over whether or not you'll achieve what I think the Reserve Bank ought to be directed to achieving and

this is medium term, long term price stability.

Q But isn't one of the criticisms about the current state of the economy that monetary policy is actually kept too tight too long because they were concerned that the perception was that they were

just running monetary policy?

A I mean, the argument that we were putting about monetary policy can't be looked at in isolation. You've got to bring in the fiscal policy response as well, which we've long said is it's all very well

for you to be cutting interest rates but are you, you know, doing enough on the fiscal side to, you know, to give a sort of chance of sustaining that interest rate cut?

Q But I suppose the question I'm always left with on

this mix is whatever the, sort of, whether they could have gone further. We have had a fairly strong shift in fiscal policy over the last few years ...

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A Have we ?

Q Well, a few percentage points, you know. We can

argue about the measures. But it's stronger than any of us thought it would be, shall we say, and certainly, if you look at what the officials have said themselves, there certainly hasn't been a correlation between change in fiscal policy and some

sort of tradeoff in interest rates that they expected. And I suppose what I wonder is, does the Opposition still believe that you can get that sort of tradeoff in the immediate sense?

A Well, I don't think there's any doubt that there's a relationship between how you're running fiscal policy and monetary policy. And I don't think anybody seriously contends otherwise. I mean, the Government wouldn't disagree with that proposition either, would they? Because their response would be that they have tighter fiscal policy and they've done all they can. That's their argument. Our argument is that they could have done more. But we're talking about, you know, in a sense, about

relativities, not about absolutes.

Q Well, just on the State Bank, which is obviously the thing you've been targeting the Treasurer on. What do you think he should have done? You've been asking him what he knew. What do you think he should have done about the State Bank over the last

few months?

A Well, let me give you a more general answer

(inaudible). He himself said nearly two years ago that what he was going to do was really crush the sort of domestic interest rate sensitive sector of the economy. And he didn't care two hoots about people going broke in that sector, including the property sector, because he was going to divert all this activity into the traded goods sector. Now that's that BRW quote which is well worth going over because it's quite precise. It is quite obviously made on the basis of Treasury advice and careful

consideration, so it's not a just off the top of my head sort of thing. Now, one of our general points is that here he is setting off on a policy course knowing what the outcomes would be and doing very

little, if anything, to meet the likelihood of, you know, these corporate crashes which he, himself, as I say, predicted. And at a time when there were things that he obviously could have been doing.

Q Such as?

Well, what he could have been doing is tightening up and having a better supervised, a more adequate system of prudential supervision at the national level. Now that's not to say that prudential supervision would necessarily have been carried out by, you know, some Federal institution - the Reserve Bank or anybody else. But, when you get

into this debate about, you know, what the States were doing and what they weren't doing, it is quite clear that we've had a hotch-potch of supervisory standards for monitoring, etc and, given his

foreknowledge of the outcome of his policy, we think he should have gone further. And it was certainly recommended to him by Campbell and others.

But do you think if he'd done that he would have actually been going around saying to the bank well, you know, just think twice about what you're lending and how much you're lending or ... I mean, it's

still (inaudible) commercial decision, doesn't it?

Yes, I don't think the argument that we're putting leads to commercial intrusion, which is his response. I don't think that's true. And, in fact, what he said today was that J P Morgans had some how

said to the, you know ... J P Morgans sort of front up at the computer centre for the bank and say, "Oh, let's have a look at your risk ratings." and then their response is, "Oh, no. We'll try it this way

and be more conservative." And, hey presto, nine days later you get a much worse appreciation or assessment of the situation. Now that raises a

question in my mind. None of that goes to an inspection of individual accounts - from what Keating has said today - which I've since sort of had half confirmed in some conversations this

afternoon. None of that goes to the commercial intrusion/inspection level. He raises the spectre of, if you follow throughout, our position. What it does raise is, well really, how adequate were the

systems in place, you know, for this supervision? And that is really the sort of nub of the questions that we've been asking. How adequate was the

supervision, the systems of monitoring?

But what should the supervision have done? I mean, what should he have done? Say, if we had - you know, I'm not disputing this - but if we had a

better system of supervision in place, ie if we knew that the loans were duds, what should he have done, then?

Firstly, it may have ... (inaudible) It may have avoided a continuation of the situation so that it might have had some beneficial effect on the extent of the losses. I don't know. I would have thought

that he might have alerted the bank to the need for more careful or more prudent activities. It might have alerted the directors of the bank to look to

the sort of management and the directions that the bank was taking. He might then have sought advice from the Reserve Bank to be satisfied about the liquidity arrangements for that bank to offset

against any, you know, untoward events. I mean, the central bankers operate in back rooms and on the basis of providing, you know, a sort of a nudge and a wink to ensure reasonable management practices.

Well, do you think part of the problem that's really come up - and Dr Hewson's sort of already identified this - but, I mean, part of the problem to me seems to be this sort of ambiguous arrangement with the State Banks. What would the Opposition do about that?

I'm not sure how ambiguous it is. With the State Bank of Victoria, for example, it was a convention that had been operating for many years which was

formalised in an agreement. So I don't think you could honestly say it was ambiguous.

Well, the fact that they're not covered by Federal regulation, Federal legislation?

I mean, you know, it's a nice point, to use the language properly. The Treasurer ... Actually, I think he's moved away from that point a bit. I mean, at one stage he was saying, "Oh, hang on, it's

not under the Banking Act." So, you know, wipe our hands for that reason as if the manner of supervision, ie statutory or contractual, was somehow relevant. I don't think that argument ever

held much water. As I say, I don't think he's sort of pushing it very much.

It's not so much ... I mean, I sort of am

interested in it not just because of the supervision angle but because the State Banks in both Victoria and South Australia were able to not be responsible to, you know, higher authority almost. I mean, this to me reflects a general concern that they operate under a different set of standards to a lot of other people.

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A Well, I mean, all the advice, all the public

statements from Bannon and Marcus Clark and all these people is that they were subject to the Reserve Bank like anybody else. Monthly, you know,

some of them are daily reports. The forex reports are daily because they get a Federal licence for that under Federal law. So that's daily. There's monthly. There's quarterly. There's annual

reports. There are published prudential supervision standards. I've got it out of the library. I can show you. I don't think that anybody's really asserting that these banks somehow were, because of their State registration, (inaudible) State

incorporation, that they were materially different to other banks. Which is why I find the whole thing a bit extraordinary - that Keating says that he knew absolutely nothing. Everybody was talking about it

for months and months. Those Reserve Bank guys, they know everything that's going on and you talk to anybody ... As John Howard interjected - he said, you know, the balloon went up when the Bank of Adelaide had trouble once when he was Treasurer. I mean, he says it so that's the position, I suppose.

I mean, I find the whole thing quite extraordinary and, I mean, this argument which is, "Oh, look," you know, "all the depositors were safe," you know, "so therefore we had nothing to worry about." How did he know? How did he know it was only the shareholders' funds that might have been at risk. And anyway, there is something special about a State

Bank. And that is that it's owned by a State government ...

Q Which doesn't have an unlimited supply of capital.

A And Keating is the Chairman of the Loan Council. So, you know, it's a typical Keating brazen sort of, you know, just put up the shutters. You see him today? He's sort of paused at one moment today because I was saying - because he was talking about Morgans - and I was saying, "Well, who told you

about Morgans?" "I gleaned it," he says. And he's thinking, "Now where the hell did I glean it from?"

I don't think we've persuaded you on the financial institutions - on the State Bank and Farrow.

Q No.

A I meant to get out your article to read it again

just to respond to the arguments. But, I mean, I think there's the general position, too, which he denies.

J

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Q Well, my argument is that he hasn't been responsible but, because all these things do often, I mean, threaten the stability of the financial system, he should be - which is something he rejects.

A You've got to have more than a passing interest if

you're Treasurer. If a big bank - I mean big by most people's idea of what a bank is - is, you know, is down the tubes to the value of $700 million. That's huge amounts of money. And everybody's known

about that. The one that Downer asked about today in Collins Street, the put option, is, you know, mind boggling.

Q It's all very disconcerting. I'm writing quite a lot about the bank this week, hopefully (inaudible).

A I think, you know, those macro things which I ran in

the MPI last week - you know, the tax system, a bias with borrowings, inflation. You know, all those things are, I mean, they're the daily affair of the

Treasurer's. You know, how the system works is what you've got to be interested in and how everything links to everything else.

Q I might actually get a transcript of the MPI. Was

that Thursday?

A It might have been Wednesday, I think. I'm going to

have to go.

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