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Transcript of Dr John Hewson mp questions & answers national press club



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Leader of the Opposition

25 September 1991 REF: TRANSCR\0286\BQ

TRANSCRIPT OF DR JOHN HEWSON, MP QUESTIONS 6 ANSWERS NATIONAL PRESS CLUB, CANBERRA

E & 0 E - PROOF COPY ONLY

SUBJECTS: Goods and Services Tax, Unemployment, Environment and Development, interest rates, exchange rates, foreign aid, immigration, capital gains tax, superannuation, Australian economy.

Bruce Juddery, Australian Business:

Greater devotion to his profession has no man than I representing for the very last time, I promise you, 'Australian Business' as wa s . "

Dr Hewson, you raised in your very first paragraph of your speech which unfortunately you didn't give us copies of, the question of character. You said that we are half way through a

Parliamentary term if the Prime Minister is to be believed. A little while later you were talking about the Opposition building up credibility as an alternative Government and the whole issue seems to be one of credibility and believability and so forth. Now in the run up to the last election you told us frequently when people were talking about you taking over from Andrew

Peacock and so forth, that the summit of your ambition was to be Treasurer of Australia. And now we have it in the words of your former wife that he was preparing for years to be Prime Minister. Okay, the Real Estate people can hiss as much as they like, I will carry on.

If she was telling the truth, sorry if she was correctly quoted, does that mean that when we go to the next election if Bob Hawke is leading the other side, this is a very bi-partisan question, if Bob Hawke is leading the Labor Party in the next election we will have to choose between two public liars?

COMMONWEALTH [ PARLIAMENTARY LIBRARY MICAH

Parliament House, Canberra, A.C.T. 2600 Phone 277 4022

REF: TRANSCR\0286\BQ 2.

Dr Hewson:

I am not going to comment on what my ex-wife has said. I have

maintained that position all the way through and I don't intend to change. One of the most hurtful and painful experiences of my life was divorce. I don't think I do my children any benefit at all by having a domestic argument about it in public or to

comment domestically on anything she said. But it was an honest statement in the last election campaign, I aspired to be

Treasurer. I thought Andrew Peacock would make an excellent Prime Minister and I came into Government as I said right back at the time of my pre-selection to be a senior economic minister and that was my aim. I have gone a bit beyond that since then.

Dennis Grant, Seven Network:

Dennis Grant, Dr Hewson from the Seven Network. Well I came specially armed with a whole stack of tricky questions about the Goods and Services Tax, I don't think I'll bother.

Well over the last year or so Liberals of various shades and persuasions have been visiting New Zealand probably more often than those of us who were born there. It has been an accessible, relevant economic specimen for some of your theories as sort of

a huge economic computer model with scenery thrown in as well. But I would like to ask you this, while you have been over there admiring the rationalism of the brave new economic world, did you get a chance to get out to have a look around in the suburbs,

have a look in the streets. I can personally attest to it that New Zealand social fabric is now stretched exceeding thin. What guarantees do we have that your theories aren't going to bring precisely the same massive social problems here to Australia?

Dr Hewson:

There are a lot of assumptions Dennis in the way you ask the

question. I don't see it as a huge testing ground for our

theories with scenery. It is as relevant an experience as a lot of other experiences around the world in the sense that you can always learn lessons and monitor the affects of policies

introduced by other people in other parts of the world. But none of that is ever graftable directly onto the Australian

experience. They have made a lot of mistakes in New Zealand over many years. They have pursued a reform agenda in which

admittedly there are some similarities but a lot of differences between what we have in mind. They have done it very slowly and with a number of errors under two different Governments of quite different persuasions. So while you can learn some things, it

is in no way indicative of the direction in which we will go in Australia.

REF: TRANSCR\0286\BQ 3.

And I would put it to you that we are really looking at an

alternative which is destroying the social fabric of the

Australian society. The sort of dependence, the attitudinal shifts that I talked about are doing fundamental harm. We are facing the reality in that 9% unemployment level that I referred to, a continuing level of youth unemployment of about 1 in 3 or about 30% across the board - what effect will that have on the social fabric of Australian society if over the next 5 years

young Australians leaving school, there are a hundred of them here, leaving school can't get a job and begin life with a

welfare dependency? I think that there are a number of very disturbing features in our society at the present time that drive me on to make the fundamental changes that I talk about. I don't deny that, of course, you do get certain frictions as you make

change. You do get some effects. You can't guarantee that

everybody will be better off instantaneously and you are

irresponsible if you do. But you can show a path, a direction, which over time you can bring that unemployment rate down. You can rebuild the industrial base of Australia right across the board. You can capitalise on the opportunities that exist in a

country as wealthy and as well placed as is Australia - on the edge of the fastest growing region of the world, the Asia-Pacific region - and what I say to you through that whole process is we will be as honest and open as we can as to the sort of effects

we expect will flow from a policy change. We are doing that in the context of a Government that doesn't tell you very much at all about the magnitude of the social disruption and the

destruction of the social fabric of our society that has flowed from their policies.

Tony Vemeer, A A P :

You have painted a pretty bleak picture about the economy and you have extended that picture into the mid-1990's and you mentioned just a moment ago again the continuing level of unemployment, which you say could be stuck at 9%. How then do you justify

going to the people with a policy that throws people off the dole after 9 months? You mentioned the young people here today, what sort of message are you giving them that after 9 months they're onto the scrap heap?

Dr Hewson:

Well it is a very simplistic representation of what we have said in the past, albeit not to mention what we will say in the

future, to say that we are just going to throw people on the

scrap heap after 9 months. It is a line that the Government uses with some emotion in the Parliament, but it is not an accurate description of our policy. There is nevertheless a commitment to terminate unemployment benefits after a period for certain

REF: TRANSCR\0286\BQ 4.

people who haven't made an effort to get a job or haven't taken a job that has been offered to them. But we do that in the

context of a labour market, as difficult as I have described, where people are going to be faced with some very difficult decisions in the course of the next 5 to 10 years. People, for

example, may have to look at the fact that they may not be able to get another job in the same industry. They may not be able to get a job doing what they were doing. They may have to change their careers. They may have particular difficulty if they are of the older working age group of getting a job at all. So re­ training and other programs are fundamentally important as you phase people from unemployment through training back into the workforce - that will be the magnitude of the labour market

package, if you want to describe it that way, that will be part of our tax reform package. We face the reality of that, but

within that we don't deny that some people will not deserve to continue on unemployment benefits beyond a period because they haven't met the conditions which they should have met in order to look for a job or to take jobs that were offered. Equally,

we have to have a clear-cut concept that unemployment benefits in a structural sense are, as they were designed, for temporary relief of those who are temporarily unemployed. You don't want to build a dependence and the possibility for a life time

dependence on unemployment benefits. So we stand by the essence of the point about cutting off after nine months but in the

context of what is a very genuine view about the need for re­ training and transition back into the workforce. We are a Party of work not a Party of unemployment as is the ALP.

Paul Bongiomo, Network Tens

One of the issues racking the Labor Government at the moment is environment versus development. You referred to this in your speech. We know that your shadow minister has foreshadowed that the RAS, the Resources Assessment Commission procedures will be abandoned under a Hewson Government. Can you tell us what

safeguards, if any, a Hewson Government will have for the

environment so that we don't see a let-her-rip mentality undoing much of the work that has been done to safeguard Australia's heritage in an environmental sense?

Dr Hewson:

It would be wrong to conclude anything other than the fact that I am as concerned about the environment as anybody else. But I am equally concerned about the extent to which the pendulum has swung way past the bottom under the influence of the extreme green movement in this country - where projects that have been approved, or satisfied, if you like, the environmental standards that have been set, like Wesley Vale which would have satisfied

REF: TRANSCR\0286\BQ 5.

as I understand it the toughest standards in the world, where those programs have been knocked back as the basis of some

political deal-doing to buy some second preference support in some marginal seat in some other part of Australia or the

cynicism that was associated with the development of the

Coronation Hill issue.

We don't think - to answer your specific question - that the RAC is necessary. We are going to look objectively at the idea of a Federal, let's say, rather than a Commonwealth, environmental protection agency based on an understanding - an agreement I

should say - between the States and the Federal Government as to an appropriate procedure for setting minimum standards at a Federal level, but with a possibility perhaps that States could

set individually higher standards, as part of the process of streamlining the development approval process.

You need to strike the balance in the sense that you want

programs or development programs that can go ahead to go ahead if they satisfy the criteria. You want that decision to be taken reasonably quickly but you don't want to clutter the process with a whole host of other approval procedures or requirements. We thought that the RAC was an additional and unnecessary

requirement. We remain to be convinced similarly on something like resources security legislation that it is necessary and the onus of proof I think is on the other side. But we will look

objectively at an effective Federal - as distinct from

Commonwealth - environmental protection agency that really does try to address that issue, recognising the joint interests of the Commonwealth and the States in environmental matters.

Peter Hartcher, Sydney Morning Herald:

As you know, the Government is holding real interest rates at extremely high levels at the moment to pursue a lower rate of inflation. You have said that you are going to pursue an even lower rate of inflation - somewhere between zero and two per cent. Yet at the same time you have said that in order to

restore corporate competitiveness it is important to get interest rates down and the exchange rate down. How can you possibly pursue both goals at once?

Dr Hewson:

Well, by not doing what the Government does, which is relying exclusively on monetary policy to do the job. If you just rely on monetary policy and real interest rates in effect to continue to maintain a reasonably tight rein over credit allocation in

Australia as the only part of your anti-inflationary strategy, then you will certainly keep real interest rates very high in a

REF: TRANSCR\0286\BQ 6.

world where we have got $165 billion worth of debt, and you will certainly discourage a lot of business investment which is certainly discouraged by real interest rates of 6, 7, 8 or

whatever the number is in real terms these days.

The alternative is to run other policies as part of your anti­ inflationary strategy and our whole package is in fact directed as much at the anti-inflation objective as it is in rebuilding the corporate sector objective in stimulating business

investment. Indeed it is fundamental to stimulating business investment that you do keep inflation under control.

So the policies that deal with cost disadvantages in relation to our infrastructure industries, be it power or transport or waterfront, are part and parcel of getting inflation down. The process of moving wage determination back to the workplace level where you get a more direct link between performance and

productivity on the one hand, and wages on the other is

fundamental to bringing inflation under control and keeping it under control. But if you persist with an environment that the Government has got - where they don't have a wage policy that ties wages to productivity, where they aren't doing anything

about the cost disadvantages in the infrastructure, where they put their sole reliance on monetary policy and high real interest rates - well of course we will be locked-in to sustained high real interest rates well above the average of our trading

partners for the best part of the next decade and that is what concerns us.

That is why the package as a whole ought to be put in place. No one part of the package in itself will do the job. No one part of the package in itself is a panacea - but collectively the package can actually do what I have said and you can get away with much lower real interest rates and a much more competitive

exchange rate if you take those other policy considerations into account.

Tony Hastings, Radio Australia:

You have advocated cutting Australia's foreign aid budget. What impact do you think that will have on Australia's standing in the Asia/Pacific region, and in particular you have advocated cutting Australia's multi-lateral aid budget - I suppose to make our aid budget more clearly identifiable as being Australian. Would that

include cutting aid to organisations such as the World Health Organisation, which has been responsible for immunising millions of children against fatal diseases?

REF: TRANSCR\0286\BQ 7 .

Dr Hewson:

It is a nice emotional point but it is extraneous to the debate that I am trying to raise and the point I am trying to mak e .

Let's begin with reality. Let's recognise that we have already been marginalised in our region, the Asia/Pacific region, as a result of a combination of the Government' s aid and foreign policies in the course of the last eight or nine years, and we would be working against that background where people already

cast a quite cynical eye over us and our attitudes to the region. In that context I don't think a strategy that seeks to refocus our aid - within admittedly a lower number - seeks to refocus our aid to the Asia/Pacific region more on a bilateral basis, and more carefully targeted on quality rather than quantity, is

necessarily going to do us any damage at all. Indeed it could improve our standing.

I don't think we, for example, got a lot of good vibes when the Prime Minister offered the bridge in Thailand or when he

committed I think about $50 million to India and Pakistan and they can't quite decide how to spend it. I don't think any of those changes really achieve the objectives that we should be

pursuing in the aid area and I believe we can improve the quality of the aid, and we have had some discussions with some of the aid organisations about that. You can use non-government

organisations quite effectively from the point of view of taking your emotional case - helping the most desperate, those in most desperate poverty, in our region - and we believe that we can

improve the quality within an aggregate cut which recognises the reality of our circumstances in Australia.

If you want to increase your aid allocation over time you get your economic house in order and restore your capacity to do just that. I don't think we are saying anything more than most

Australians feel when we talk about aid in that context.

Allan Sunderland, SBS TVs

It would probably be remiss of me in particular not to ask you a question about immigration. But rather than respond to it only in terms of a possible split in Liberal Party ranks, which we know couldn't possibly be the case, I thought maybe we could address the issue itself. I note you have stated recently, I've read it in the papers I think, that immigration should be cut.

I am interested in how you believe that should happen and

specifically how far. We know the projected intake for this year

REF: TRANSCR\0286\BQ 8.

is 111 [thousand], but we also know all the indications are it will be far lower than that, some people are talking 80-85,000. Is that the sort of level you are talking about and are you

simply talking about merely accepting a lower intake or taking positive steps to cut - to change our requirements, to change our numbers? So I guess a bit more information about exactly what you have got in mind.

Dr Hewson:

Phillip Ruddock has actually given a fairly detailed statement of this in the speech I referred to earlier to an immigration conference last year. We see two factors working on immigration. One, the fact that in a recession we are a less attractive place,

fewer people want to come here, the number of applications I am told is down by around 20 per cent; and we of course have a

number of people who are leaving Australia, previous migrants who are leaving Australia, on the one side. And on the other side is our capacity to absorb migrants of the sort of orders or

magnitude we have seen in recent years in the midst of a

recession where a very significant percentage of them on the Government's own numbers, end up being unemployed. I think the last number I saw was about 35 per cent of the recent arrivals ended up unemployed. What we are dealing with the reality of the choice of whether we deal with that problem or whether we accept the fact that maybe we are prepared to add more migrants to the unemployment rolls, or we are prepared to displace those that are already in Australia from jobs, to accommodate an increased migrant intake, or importantly whether we are prepared to lower the integrity of our immigration program to achieve a particular number. And that is the dimension of it that I would like to

emphasise.

We are really talking about managing towards a lower number. In effect, accepting the reality of a lower number for the two reasons I gave. I don't believe it makes much sense to set

specific targets and then set out to achieve them because the history of recent years has been that in order to do that the Government has undermined the integrity of the immigration program to achieve that result. So we are in part accepting it but in part accepting the reality that the numbers could fall

significantly. Now I don't know what they will be this year, you are right that they have targeted about 111,000 but presumably a significant number will actually leave Australia. The net number could be dramatically lower. It could be as low as 75­

80,000 - that we don't know. The gross number could in fact be quite a lot lower because the number of applications that meet our criteria have fallen off. So in those circumstances it is

REF: TRANSCR\0286\BQ 9.

a question of managing it down. If you look over our history of immigration, relative to the business cycle if you like, you have seen quite a significant fluctuation in the level of immigration

relative to the population over cycles and we have tended to face that reality in the past. I am saying we need to face it again in current circumstances and we have been particularly concerned at the extent to which the Government has set out to undermine

the integrity of the immigration program in the past simply to achieve a target. That doesn't do us as a nation any good at all and I don't believe it does the migrants that come on that basis any good at all either.

Martin Hurst, SBS Radio:

Sorry to pester you about immigration again, and the aid budget, but last week you did make quite categorical statements that both immigration levels and the aid budget would be cut but in the current debate at the moment about those two particular issues, even the economic rationalists are not convinced on either count that a cut is necessarily going to be good for the Australian economy. The Bureau of Immigration Research, for example, has produced a number of reports in the last few weeks arguing that high immigration can in fact be a positive in the economy for Australia, that migrants don't necessarily take more social

security than they provide in taxes, a range of arguments like that that indicate it's not really clear cut where immigration actually should be in relation to unemployment in the recession. Regarding foreign aid, a number of experts at the Council for Overseas Aid and somebody from the OECD who has recently been in Australia, both argue that it is not only an altruistic position

for Australia to provide foreign aid but it is also in our

national interest and can actually provide an economic boost to Australia during a time of recession. So my question is

basically, given the confusion in the debate at the moment about those two things, how can you categorically say now that is good that both of these things should be cut?

Dr Hewson:

Some people are more rational than others in the sense that I can give you strong arguments for why the short term effects of expanded immigration in current circumstances are going to be against our short term economic interests. To be clear in saying this, and I have said this for quite some time, I am a believer

in increasing, significantly increasing, immigration in the medium to long term in Australia and as soon as we can get the economy back to a capacity where we can handle that sort of rapid expansion of immigration I for one will be out there advocating

it. I have believed, without any exception, over the whole period of the post-war period the contribution of migrants to Australia has been fundamentally positive, even though the evidence on that is a bit mixed too, sure you have to judge the

evidence as you see it.

REF: TRANSCR\0286\BQ 10.

In the short term though, where you have the sort of unemployment labour market situation that I described, let's say you take 100,000 new migrants and that about half of those end up looking

for a job, that is 50,000 more jobs that you have got to find in that year than would otherwise have been the case. You have got to find a way of creating those jobs or accept the fact that they may displace the jobs that others would otherwise have got. And

it is true, I think, on the evidence that a significant

percentage of newly arriving migrants end up being unemployed for some time as a result of trying to add that sort of intake to a market of the size we have got. Sure, when they start to work they do contribute tax, make a contribution to tax revenues and

so on. But equally if they build a house they make a

contribution to the import level of the balance of payments, as a significant percentage of the construction of something like a house is detrimental in the short term to the balance of

payments. So there are plenty of arguments, we have had to make a judgement. It was the reason why I raised the issue I think in my press conference after becoming Leader, I thought we needed to have a mature debate about this and in that debate we need to

be prepared to identify the arguments that have influenced us and to take a clear cut position on the issue, which is what we have done. There will be other speeches by Phillip Ruddock in due

course and others that will continue to expand on the evidence as we see it, but in the end you need to make a judgement about these things and we have made our judgement for the reasons that I have given you today, the reasons I put in the speech last

Friday, the reasons that Phillip Ruddock has put in more detail in his contributions to the immigration debate.

Brad Crouch, Sunday Telegraph:

Dr Hewson, you mentioned re-building the economy from the bottom up through radical change in your speech today. Is there not a danger that such dislocation could worsen unemployment in the short term or are you forecasting a substantial drop in

unemployment in the first term of the Hewson Government or will it stay at about 9%?

Dr Hewson:

To be honest we have done some projections, we have tried to use the available models to see what is reasonable in terms of

feeding a whole package of our whole reform agenda, if you like, into those models and that is not an easy thing to do given the way those models are constructed, and look at what is reasonable over a 5 to 10 year period in Australia in terms of the level of

unemployment. Now it is very important, and I would emphasise this that you do it as a package. We have been trying to say

this for quite some time now that the package is important

REF: TRANSCR\0286\BQ 11.

because any one element of the package can quite readily make things worse. For example, if we just cut protection today towards our objective of zero protection by the Year 2000 we will start to add to the unemployment problem. If we cut protection, however, in the context of the package of tax reform and a

package that eliminates the cost disadvantages under which a lot of those companies operate, it is possible to have a bigger and more dynamic industry even though you are cutting protection,. The best example I can give you there is one given to me by the

car industry, Jac Nasser of the car industry, who has identified for us their cost disadvantages - 30% of their cost disadvantages are interest rates and the exchange rate, another 40% is the labour market and the remaining 30% relates to scale, technology, transport costs and so on. They readily concede that in a world where you can fix the first three - interest rates, exchange

rates and the labour market - that they are so dramatically better off that it is possible for them to look at expanding their output of cars, not shrinking it. Now I am not saying that there won't be substantial change in that market, it may be that we don't end up with 5 car manufacturers, it may be that we have

a completely different configuration of the models of cars, but in a world where we can see an expanded car market in Australia down the track, it is not clear to me that you won't end up with

more rather than less people in that industry even if some of them are shuffled between companies in that industry in the course of that process. So I put it to you, just take the tax

change as part of that package, the Goods and Services Tax will lower the price of cars in Australia and that in itself can

increase the demand for cars and start to give you a larger

market. So that if you look at it, it is possible to have a

bigger and more dynamic car industry as a result of the package of changes. But equally, if you just cut protection, well you will slowly send them broke somewhat faster than they are

presently going in an environment that has existed in recent years and you will increase unemployment.

Michelle Grattan, The Age:

Dr Hews on just to follow that question, can you be a bit more precise on your modelling as to what unemployment level you would expect under a Coalition Government by the mid-1990' s , you have been very precise about the Government's level?

And secondly, what do you consider these days to be full

employment and would that be the long term target of a Coalition Government?

REF: TRANSCR\0286\BQ 12.

Dr Hewson:

Well Michelle you can have a long and tortuous debate among economists as to what constitutes full employment. There are a lot of different ways of estimating the appropriate level of employment or unemployment that people accept as full employment.

I suppose most people say it is around 5 or 6 or 6.5% in current circumstances, but I don't know for sure. It depends whose view you take but it is considerably less than the 9 or 10 or 11% that people have in their minds at the present time. And I think we

should, as a nation, seek to restore full employment as a

national objective over time. I am not saying that you can do it quickly and I am not promising that we will do it in our first term or anything like that, but realistically just like price stability ought to be an objective, so should full employment be an objective in this country because I don't think anybody will, as an Australian, settle for less than a full employment

objective.

Secondly, as far as the modelling goes, well part of the package that we will release will give you some scenarios. Now we aren't in a position to be able to give you a definitive statement of what will happen under us because the models that exist, that are

publicly available, I don't know what the new magic model in Treasury can do, but the ones that are publicly available it is very difficult to demonstrate the case of our package but we do have estimates of the GDP impact, for example, of most of the

elements of our reform agenda many of them are taken from the Business Council or taken from the Industry Commission, we can show you some scenarios about what happens if you get the

economy, if you boost business investment for example and stimulate growth in the economy how much faster you can bring unemployment down under the sort of circumstances we envisage in the package. So we will give you some illustrative figuring,

some indicative figuring but we aren't in the business of making firm commitments as to percentage improvements because it is not real life to do so. We can estimate things like we did, the

100,000 increase as a result of the superannuation package using the Murphy model, you can do those sort of runs. But we are

about dealing with what it will be, as I have said explicitly, a very difficult structural labour market problem over time and it is possible to start to bring unemployment down by moving as

a matter of urgency with the sort of package we have in mind.

If I can just demonstrate though how importantly that depends on our capacity to stimulate business investment, stimulate sustainable growth in Australia and therefore stimulate sustainable real jobs in Australia.

REF: TRANSCR\02 86\BQ 13.

Geoff Kitney, Financial Review:

I am going to mention the unmentionable, tax. The question of the black economy, how serious do you believe the problem of the black economy is? Is your estimate of the size of the black

economy the $30 to $40 billion that has been mentioned by Mr Reith? Do you share Mr Reith's view that Australians are the world champion tax cheats?

Dr Hewson:

You didn't disappoint me Geoff I thought you might ask a question about tax and I am pleased that it is not another question about models because the Government has been trying to run the line that I am some mad right wing idealogue that is driven by

computers, I wouldn't want them to consider that from my answers today that is all I think about, so I am happy to answer your

question on tax.

The black economy obviously is very difficult to estimate in Australia, nobody denies that. There are a range of estimates made in the Australian context that are based on overseas

experience. I have no doubt from what I have observed

anecdotally that it is a very significant feature of our economy and Peter has started a national debate about the size of the black economy, it is a very important thing that we focus on, it is a key reason why you do make a change towards a Goods and

Services Tax in this country and we will be happy to stand by, in the end, the numbers we use in our package as our best

estimate. Now, undoubtedly the Government will say, you are not right, they always do that, but I don't think there will be too many people in this room or in the rest of the country who

wouldn't doubt that the black economy is a major issue in

Australia and that tax changes like the fringe benefits tax, for example, didn't have much to do with the black economy even though the Government is saying that they did.

I think that there has been a tax cheat mentality in Australia in the sense that a number of people have abused the system and that has been well documented over the years in Australia. Peter in no way said that every individual Australian was a tax cheat, which is the implication you tried to draw, but there is no doubt

that we have got some well documented evidence of tax cheatery in Australia. We are very concerned, despite what the Government has been arguing, about equity and fairness in the tax system, a large part of the system we have designed is to make sure that those who are average PAYE tax payers, who don't have the

advantage that others have through deficiencies of the tax system to minimise their tax, that they don't continue to be taken for granted or made worse off because tax for a lot of others is

Australia is still an option, certainly an option for some of the

REF: TRANSCR\0286\BQ 14.

rich. And the Government persists, as we have shown in recent days, with a superannuation policy, for example, that can be rorted. They want to talk about tax rorting, people are using superannuation as a basis of minimising tax - pay 15% on an

employer contribution on superannuation and down the track there might be 15% tax paid on that income - still substantially less than the top tax rate of 47 cents. There is also scope between the top personal tax rate as the system presently exists and the

corporate rate, the difference 47 and 39, for people to minimise their tax by incorporation under the existing system. Those opportunities and a host of others are not available to the average PAYE tax payer, they are part of the tax cheat mentality or tax minimisation mentality that exists in Australia. We want to make sure that our package, in so far as we can deals with the equity and efficiency dimension of that problem and it has been a major guiding force in designing our new tax package that we do get a more equitable system.

Robert: Garran - Financial Review:

I to have a question about tax Dr Hews on. We know what the

Economic Action Plan from 1989 says about Capital Gains Tax, but will the changes in your new tax package still allow capital gains after 5 years to go tax free or will changes in the package be aimed at improving the efficiency of tax on capital gains over

shorter periods and a longer term perhaps by improving provisions for small business people to roll over?

Dr Hewson:

Well I am not going to give you the details of our capital gains tax proposal today and I am not going to give you the details of the GST package either. We did say, quite frankly, we did take that policy that you have described to the last election. I have subsequently said on many occasions that it was being reviewed as part of the whole review of the tax system. Every time I say that everyone immediately concludes that I am going to change and

I then say well don't conclude that I am going to change because I may not. I may review it and stay where I was, but that is all I am going to say today about capital gains tax, except that I can guarantee you one thing in relation to capital gains tax, we will not have the government's capital gains tax system.

Maxine McKew, ABC Radio:

Dr Hewson, Maxine McKew, ABC Radio Current Affairs. You spoke in you speech about the back lash against economic rationalism. I wonder what you say to your conservative critics, and I quote here Dr John Carroll from La Trobe University, his view is that you are married to the purity of the idea and ignore reality.

REF: TRANSCR\0286\BQ 15.

Now, he cites his evidence for this and I know you mentioned this earlier. You say that the package of reforms if all important but we have to keep in mind pace here and what happens. He cites his evidence of your ignoring reality the absurdity of further

accelerating the elimination of tariffs at a time of huge

unemployment.

Dr Hewson:

Well, what I'd say is what I think I have said a couple of times in answers today, and quite specifically in answer to one other question.

If you just cut tariffs, you will create unemployment. If you cut tariffs in the context of the reform agenda, it is not clear to me that you will increase unemployment. And look, the

challenge I issue to business audiences, company by company or individual by individual is to bring along their P & L account, their profit and loss account. Lets go through all the cost items and let's just change each of those items along the lines of the Industry Commission or the Business Council says there are

savings in each of those items as a result of a reform agenda. And do the bottom line and add it up and see how much better off the company is and see whether you continue to need protection in that context.

You know, we are not, and the answer is that I have yet to see

a case where you can still sustain an argument for protection, and people like Carroll and others will have to deal with the reality that we have gone the protectionist route. We have had a period of time where protection on textile clothing and

footwear has been over 200%. I haven't seen any evidence that that created a hell of a lot of jobs. In fact these were periods which clearly didn't create a lot of jobs. The number of jobs in the industry shrunk and so I say to them that, you know, there

is a lot of evidence on the other side to convince me that we

have tried the route of protection and selective assistance and it hasn't worked. I am not driven though by that particular example that he picks of just doing protection in isolation because I have never advocated that. I firmly believe it has got

to be part of a package and everybody when they see that the

package is there and can do what I say it can do, accepts the

fact that you probably don't need protection.

And the only issue I think, in the business community, I think now that I have taken a view that our policies are certainly in the right direction and more likely to get their support than any alternative, they want to be convinced that we will actually do the rest of the package and that is really what the debate

between now and the next election is going to be pretty much about is our capacity to convince people that we will actually deliver the rest of the package and we won't just cut protection.

REF: TRANSCR\0286\BQ 16.

I didn't come into government to throw people on the unemployment list. I don't want to leave office, as Bob Hawke's going to do in the centenary year of the ALP or maybe shortly thereafter with one monument namely, nearly one million people unemployed. I am about rebuilding the Australian economy so that average

Australians can actually better themselves, have the opportunity to better themselves, earn more, keep more and that doesn't seem to have impacted on the minds of some of the critics within the conservative area of the political debate who seem to take a simplistic notion that I am in the business of creating

unemployment, because I am not.

Rob Chalmers, Inside Canberra:

Chalmers, Inside Canberra Dr Hewson. As a preamble might I draw to your attention that it is not just the media that is extremely interested in the details of the GST but the service industries that are going to be taxed for the first time, such as the

tourist industry. That is on the side, what I would like to ask you is not a question of detail, I do not want to know what the GST actual rate is, but a question of principle. And that is, how are you going to deal with the gambling industry which is

already subject to heavy state taxes, that is the TAB, lotteries, casinos etc, given that in New Zealand the tax in New Zealand applies at 12.5% tax the total turnover. Can you tell us what service will be applied by the GST to the gambling industry in Australia.

Dr Hewson:

Well it is a very complex question just to pick up the first part though in your preamble. We have used the period of the last 12 months to talk to a lot of the groups, including the ones you mentioned to understand the nature of their concerns about a

goods and services tax. Many of them have, in fact, done a lot of work on the experience of other countries. And that has been very helpful to us in designing our package and taking account of their concerns and giving them an adequate chance to be heard.

On gambling, well there is a simple rule and there will be a

detailed statement made about this. You have given it quite a bit of attention, I think, in your Inside Canberra, but there will be a detailed statement made. Essentially you don't tax the prize, you tax the service associated with the issuing of the

ticket and in that sense we will have to give you some fairly detailed definitions of what we mean by the definition of that service and that is precisely what the words we have written do.

So when you see the package you will see that we can actually provide you, I think, with a definitive answer for the way it will impact on that industry and gambling is a big term. A lot

REF: TRANSCR\0286\BQ 17.

of individual activities which would get caught under that term and some of those are quite different, so we need a different definition of service in some of those cases which is the sort of work that we have done.

Glen Milne, The Australian:

Glen Milne from the Australian Dr Hews on. Just a point of

clarification then a question. In answer to a previous question, you said there was some debate amongst economists whether 5-6% unemployment represented full unemployment, is that a figure you subscribe to and therefore is that the figure you will be aiming

for in your first term and secondly you referred to

superannuation as an area of tax evasion, growing tax evasion. Do you see room in your policy for revising superannuation contributions and introducing differing tax treatment, differing tax treatment of superannuation benefits, particularly amongst high income earners?

Dr Hewson:

On the first part of the question, I thought I said in answer to Michelle Grattan that we can give you a feel for the direction in which we can take employment and unemployment over a period

of time by doing various simulations and showing various

scenarios of what can happen to unemployment if you boost

business investment. Now, that is the sort of thing that we say in the package. It is not necessarily, it certainly doesn't specify specific targets, it shows you what is achievable and what needs to be done in order to achieve those outcomes. I

haven't made a decision yet whether there is much mileage in putting a specific target given the difficulty, as I say, of working with the models that are available to us, which really do not accurately represent the full extent of the package that we have got in mind and to the extent that you make those

adjustments you qualify the accuracy of your estimates. So it is indicative figuring to emphasise the point not a commitment.

The second part of your question is on superannuation, well I don't want to say what will be in the package but superannuation ... we have had an alternative retirement incomes policy based on choice rather than compulsion. We have had a look at that policy but I won't foreshadow that it will or won't be part of the package. I do make the point though, and one of the reasons that I have made the point about the problem with the

Government's system is that they have been asked to have a

national summit on superannuation to, you know ... their

proposals could be subject to High Court challenge by the

corporate sector. I think we do need a large scale genuine

debate on superannuation in Australia. It is one of the dominant issues of this decade. It certainly will

REF: TRANSCR\0286\BQ 18.

be one of the dominant issues. Their policy has all the worse features I believe of a superannuation system that is based on compulsion, one that is based on concentration of financial power in the hands of a few large institutions who will be investing, the superannuation funds right through this decade by very large numbers, $600-800 billion, as said by the ex-Treasurer by the Year 2000, so we do need a major debate about this because we are

in the process, I think, in Australia of facing the reality that we have to change the system by which we provide support to

people in their old age and we do obviously have to encourage, and a private based activity in our view greater preparation for retirement, because our capacity to handle the magnitude of the pension bill on existing sums as my generation, the post war baby boom hits that, in the next 20 odd years time, is way beyond the dreams of most people in terms of the sort of impact that will have on our system. I think pensioners are, if I remember a

number, and I would have to stand correction on this, but I

remember a number from a speech the other day given by the head of the AMP, currently it is 1 in 6 people support pensions in the system, it would be down to 1 in 3 at the peak of that post war

baby boom and that is a massive medium term constraint, or long term constraint on our economy. What I want to do is ensure, and the reason we have been participating in the debate is to ensure,

that we can elevate the superannuation issue and get the sort of debate that we have had and generate the sort of work that has been done in, say, relation to immigration over the years since we raised that issue, get it done on superannuation so people can make some informed choices. Because I think it will be a major

issue at the next election. There is a lot of misinformation around in terms of what the occupational super scheme as we know it, to the extent that we know it, what that will do for

individuals and the extent to which that will actually help them prepare for their retirement. It is obviously going to have a very significant effect on savings attitudes, private sector savings attitudes and in that sense we need a full blown public

debate on superannuation.

Laura Tingle, The Australian:

Laura Tingle from the Australian Dr Hewson. You've said today that we need to build the Australian economy again brick by brick and you have also said that your mandate is for a courageous policy platform of change. I would like to ask you in that

context, do you agree with what appears to be the majority of academic assessment both historically and in the present that housing has tended to promote the boom-bust cycle in Australia and in the economy. Do you agree that distortions have helped create that boom-bust mentality and do you agree with the IC's assessment released today that that has been partially helped now by the capital gains tax exemption and would you be prepared to actually embrace their recommendations that those exemptions

should be lifted in the future.

REF: TRANSCR\0286\BQ 19.

Dr Hews on:

Well, I talked about political courage not political stupidity. We are not going to change the treatment of housing and capital gains tax on housing.

Tony Parkinson, The Australian:

Tony Parkinson from the Australian also Dr Hewson. That was short and sweet. Just to clarify another remark earlier, where you said or you seemed to be suggesting that incorporation was being used virtually as some sort of tax avoidance or tax

minimisation measure, widely used in Australia. Can we assume from that that the tax package will either bridge the gap between the top personal income tax rate and company tax or at least go some way to addressing the gap between the t wo.

Dr Hewson:

Well, you know, it is a commendable effort as a last attempt to get one of the details of the package by the end of the day. I

have already given a detail on capital gains tax on housing so I really wouldn't want to give another detail. But, it is a

problem and I gather that it has been a very significant problem. If you look at the number of people in the top, number of people in the top tax bracket, and I am looking at Peter Reith because I don't remember the number, but it has dropped from over 100 and something thousand to about 50 thousand since that change was made and that opportunity was opened up and I think while the

number of other factors might have worked on that I think is suggests that quite a significant number of taxpayers have taken advantage of it and therefore it is a problem that needs to be addressed in the process of a tax reform package.

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