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Transcript of Dr John Hewson, MP Interview with Paul Barber & John Hindle on Radio 3AW, Melbourne

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Leader of the Opposition

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26 June 1991 REF: TRANSCR\0029\B&BB



SUBJECTS: Recession in Victoria, banking industry, entrepreneurs, taxation reform, privatisation, Republicanism.


This is a first for both of us John because in the studio is

another John, as in Dr John Hewson, Leader of the Federal

Opposition, thank you very much for coming in.


Thank you Paul and John, delighted to be here.


Yes thank you for coming in it is good to see you in Melbourne, Victoria.


Yes I spend quite a lot of time in Victoria.


Well speaking of coming in, friends of mine come in here from other States and say how depressed we all look and how depressed is here more so than everywhere else, is that your view as well?


I think it is true that there is that sort of image as you enter Victoria - the business community is certainly quite depressed and I have visited places like Geelong, Shepparton during the SPC dispute, Hamilton during the wool issue and of course in

Parliament House, Canberra, A.C.T. 2600 Phone 77 4022 COMMONWEALTH parliamentary library MiCAH


particular areas where the problems are even bigger than the general recession I think the mood has been one of great concern and it is reflected in the economic numbers of course, in terms of unemployment, business failures and it is going to be very difficult to turn that around.


Just a general question on that sort of Ministerial

responsibility for things like Pyramid on the one hand, as the Minister, you have got this thing where you are not supposed to be interfering, on the other hand you are supposed to be

responsible, what are your view when it comes to a situation like Pyramid developing as to how you intervene and when you intervene and what you do and what you don't do as a politician?


Well just a couple of comments I guess, the Campbell Committee which studied the financial system back in the early 1980's recommended that there be an effective national system of prudential supervision which basically meant that there was an

effective monitoring of the performance of financial

institutions, not necessarily by the Reserve Bank, but at least there would an understanding of the standards that should be met and there performance could be noted and there inadequacies drawn to the attention of people and I think one of the failures in relation to Pyramid was that people didn't know it was basically almost a property development company rather than a building

society - if they had known that a lot of people would have taken a different attitude.


Well who should have told them that?


Well the authorities, it would depend how it had been done, but probably the State Registrar of Building Societies would have had that responsibility under a Campbell type system. The other point I would make though is that when politicians did get

involved and told people not to worry then of course they had, in effect, accepted responsibility for what was to follow and people undoubtedly took them at their word. One wonders how politicians could make that sort of judgement in the light of what was obviously a deficient set of information around about how that society was performing. It has been a similar

experience now in relation to other institutions be it the State


bank here or the State Bank in South Australia and a lot of

innocent Australians, which is the key point, have seen their savings put at risk in some cases I imagine they may not get them all back. It is not just Pyramid, there is a whole range of

institutions which for one reason or another now got into trouble and people have lost money or stand to lose some money or have to wait to get their money back which could have been avoided to a large extent, at least they would have been aware of the risks they were taking if there had been a proper system of supervision

in place.


The politicians in question out here in Victoria suggest that they made there don't worry statement because they had seen a report from the accountants that said, everything is kosher, beaut go for it. This brings me to a question really, do you

read the English Spectator?


No not regularly.


Well there was an interesting article there, it was a Tory sort of thing, I thought you might have read it.


I need to read all the Labor Party and other magazines ...


There was an interesting article in there the other week and it more or less said, here we are all these companies are going under and all of a sudden there is people put in charge of them

receivers, people to operate them, to sell them and these people are being put in, in charge, are people who have never really achieved much, they are accountants, middle ranking accountants, suddenly they are running the show. I thought about this for a while and I thought this is happening here too, it really is,

there are so many places going under, there is so many

accountants being called in to administer and to be receivers and to run the place, last cheque I got from 'The A g e ' was from the receivers - when you publish things it is rather beaut, take it to the bank and the receivers will send you a cheque. What do you think about that and what effect will it have when you see

these middle order batsmen coming up and sort of opening the batting?



Well to a large extent they are of course professionals in what they are doing and they presumably are expected to come in and make an objective assessment, having had no particular links with the organisation, look at it on its merits and assess what went wrong and what needs to be done to turn it around. In many cases

I believe they are extremely well qualified to do that. The difficulty, I think, we have had in the 1980's is that there were so many excesses in the business community generally and we all need to re-think, I think, the roles that were played and the responsibilities we should carry in relation to the roles we played. Clearly a lot of accountants signed off on things in the course of the 1980's which perhaps in the light of hindsight or closer examination or whatever they might have not signed off with the same enthusiasm or they may have at least raised some more reservations or whatever. So I think the profession does

need to look at itself as do politicians need to look at the

roles they have played and of course business people individually have to assess the roles they play - there was some unbelievable excesses, appalling excesses and I don't think the rest of the world can easily understand how, given the magnitude of some of

the excesses of the 1980's in Australia that we haven't seen more people brought to account and held responsible, convicted or charged, at least in relation to some of the things that have

taken place. Now part of that, of course, related to the absence of an effective system of National Corporations Law, part of it is the fact that the relevant authorities were under funded and they couldn't actually do the investigations they wanted to do and part of it is, I suppose, people are very slow to recognise that they had a responsibility to in effect self regulate, look at themselves and the roles they were playing and the accounting professions are part of that-. So -I -think it is. important that we do step back now and learn from those excesses and make sure

they can't be repeated in the sense that not only has the law changed but some basic practices and policies of organisations and individuals have changed.


Would you like to see a few more go to jail?


Well if they are guilty, of course, they should be brought to account and the difficulty is, of course, people tend to believe there has been a lot of excess that should have resulted in

conviction and it hasn't happened yet, in fact very few charges have been laid, that may be under way at this point. It


obviously has had a very bad effect on our international

reputation, I have had many reports from overseas about attitudes in America and Europe to Australia and they entrepreneurs, few as they were in a sense, the extreme cases gave us all a bad name and the most striking example of that is the story in New York that they are saying that Donald Trump is an Australian - they don't want to own up to him themselves, they want to pass the blame, he must be from down under - that is a pretty sad comment

I think on how far we let things slide and we all have a role to re-assess.


What would you say to the proposition of governments in

Australia, we'll just talk about Australia, whether they're good or bad, can be no better than benign meddlers, and that the whole economy is really run by market forces anyway.


Its less true, increasingly less true, in the sense that I think the number is now up to about one in two that either directly or indirectly depends on government in Australia and the role of markets and the private sector has been reduced and, of course,

one of the great damages of the recession we had to have is that a large part of the private sector, the wealth generating sector, has gone out backwards.

A lot of small to medium size business people, I don't think, will return very quickly to business. Many of those are looking around for jobs in government or jobs which involve less risk. I think government has to get out of the way, first point, I

think there's a lot that we-can-do to-move-away from government, privatising government business enterprises is, I think, one way of doing it, contracting out the provision of services is another way.

A lot of services government provides can in fact be contracted out and be supplied by the private sector. And you could take a hospital as a case in point. If you think through the

services, almost all of them could be done by the private sector, cleaning, linen, meals, pathology, secretarial, building repairs, maintenance, gardening, whatever, ambulances, they could all in effect, security, all be put out to the private sector. Now

that's another way I think you can reduce the role of government.

But I think another aspect of your question relates to, you know, an expectation, I guess, that people have that government should do something. I mean you pick up the paper almost every day

there's a front page story saying, reporting on somebody calling on government to do something, to fix this, or increase that, or


provide some assistance here or there and I think a lot of that sort of dependence on government and expectation about government is misplaced. And in that sense quite often government ends up meddling rather than solving problems and quite often compounds problems, rather than solving problems.


Speaking of doing something, can we can to what might well be your Achilles heel, I suppose, at least the Prime Minister hopes it will be, and he said as much today in Hobart and that is the consumption tax idea that you have. First of all what percentage

are you talking about in terms of a consumption tax and does it include things like phone and gas and doctors bills right across the board?


The fact is we haven't announced the detail yet because we want to do that as part of the total package, but as a principle it will be as broadly based as it can be on everything as a matter of principle. Very few if any exemptions is the way to look at

it and its the only effective way, really to have that type of tax.


But is it fair, sorry to interrupt you, but just to take one

example, the doctor's bill, fifteen percent on a doctor's bill, I mean, that's really going to hurt low income families like nothing else will.


If its fifteen percent.


Well, ten.


Well, whatever the rate, they can be compensated under the proposal and it is a question really of looking at it as a

package. We're obviously not introducing a new tax, we're replacing an existing sales tax, if you like, with a broad based sales tax, a goods and services tax, as we've described it, and we'll be able to compensate those who are disadvantaged by the


REF: TRANSCR\0229\B&BB 7 .

It is possible to go through the household expenditure data, identify various income groups and various types of families, be they pensioners or families with children or farms or whatever, look at the impact from that data of a tax of whatever level you put, on that family structure on their expenditure, and then you can look at how they can be compensated. Now in some cases, for a pensioner, of course, you would simply increase the pension.

In other cases it will be a combination of government benefits and tax cuts that are required to compensate. But in principle they can be compensated. And that change is very important because it really does shift an important element of tax,

provides the opportunity for lower personal tax, and we're doing it also in the context of cuts in government expenditure.

So we'll actually be putting money back in people's pockets over and above, and they'll be in a position where, if they work

harder, or if they want to save, its worth their while to do so as a result of the changes we make. Now, its the sort of change that we've got to make for the country. I mean, the country

actually has to lift its game, it has to work harder, has to

produce more and save more, and part of the process, and its only part, but part of the process is putting in place a tax system that encourages that rather than discourages that.


I've listened to all that, we still don't know the percentage of this mythical or this future... But while I was listening to

you, my mind was going back to George Orwell, who said at one stage, you'd have to...


Were you alive back then..


Yeh, I was in his lifetime, yes. George Orwell said you'd have to be an economist to understand that, no ordinary many would be so stupid.


Well, that's what the Prime Minister's hoping, I guess, that he can get away with that type of argument. But the point is that we want to bring about a change where people lift their game in terms of raising the quality of their work, or improving their

productivity, as its said, or increasing their savings that they're significantly better off, 'cause if they're significantly better off, the country is going to be significantly better off.


There are no magic puddings in this, we're not, sort of, trying to give everybody a benefit without saying that there won't need to be certain adjustments, but the opportunity will be created by this change and the other aspects of our policy for people to be significantly better off down the track. And that's got to be looked at in the context of the government's approach, which

is really just cutting their living standards.


Just an ordinary person here, I just want to put this to you so you can tell me where I go wrong when I fantasise about this

ideal Australia. Your consumption tax, I've got no quibble about that, but I do think that it's got to work in tandem with some kind of flat-based income tax, so that there's then an incentive to improve. You see, the consumption tax looks after itself, the more you spend, the more the government gets, the more you get because you become a more affluent person. But if on the other

hand the personal income taxes go up, it doesn't leave us going anywhere, except on a treadmill.


Well, personal taxes will go down and they'll go down not only because of the fact that well will use some of the revenue from the goods and services tax to lower personal tax, but also

because with cutting government expenditure you can cut personal tax that much m ore. I think one of the big problems we have in Australia is the fact that our tax rates are so high at quite low income levels. For example, at a bit about $20,000 you go from

20 cents to 39 cents in the dollar.


Which is heaps.


At $35,000 you go from, I think, 38 or 39 cents to 46 cents. Now average income on the statistics is about $30,000. The average Australian is already basically in a 40 cent tax bracket, and moving close to the upper 40s. Now there's no incentive for

anyone to work overtime, to take on another shift, to work on a Saturday, that sort of thing. And that is one of the fundamental problems with out tax system is that it is very progressive, the jumps in the tax rates are very large at quite low income levels,

and so there's a very strong disincentive effect to encourage people to either work more or save more. And that's the change you've got to m ake. So, just to pick up your point, you're

saying flattening it, I guess what you really mean is reducing those marginal rates so in fact they have an incentive to ....



. . . well, if you make more, you'll spend more, this is one little principle...


...or save more, which is important.


...or save more.

Hewson;'re giving people the choice, give them more in their

pockets, and say, right, you can then determine how much tax you pay, in a sense, by what you spend on, what you buy, and equally you have the choice of either spending or saving. And giving people that choice is important because the country's basic problem is we live on other people's savings. We borrow savings

from the rest of the world and we've got a huge indebtedness to the rest of the world because we've borrowed their savings. What we've got to start doing is saving ourself so we can start to reduce that debt and get off that hook. And that's why the tax

system is, its only part, but it is a basic part which will

provide incentive for people to, well, think about tax when they spend and equally save more.


When will we all be able to fall in love with a fully articulated Hewson taxation policy?


Well, we aren't putting a date on it yet. We are keen to do it

sooner rather than later but we want to put out an enormous

amount of detail, if you like, about it. People naturally have a lot of questions and we want to try and answer the great bulk of those questions as we can anticipate them. When we make that announcement, we want to be able to deliver information to every household in Australia.

We are still two years away from the next election, confirmed today by the Prime Minister. So, we have a little bit of time but we really will need a large part of that time to explain it to people and to answer their questions, legitimate questions

about it .

REF: TRANSCR\0229\B&BB 10.

We want to set up a national program, whereby we can be, have people available to answer those questions and convince people of the merits of the change. Just one final comment, it is not just tax reform per se, that is fundamental to what we are doing, but if you look at that in the context then of a different labour

market and a different link between employers and employees, employment contracts and if you look at it in terms of lower or cheaper telephone calls, and cheaper airfares and cheaper waterfront charges, and lower rail freight costs and so on, we

are going to build a much bigger and more productive economy as a result of the total package and that is really what we are



Couple of quick questions. Will this consumption tax remain at whatever level you set, say it be 10%, 12%. Will it stay at that level because in other countries it has moved up and that is one of the big fears that people have?


I think it is important that we state, when we announce the

package, the length of time that we see the tax level staying at that level. Now, for example, my inclination is to say look, this is the rate, it will apply for the next parliamentary term and I think you just deal with one parliamentary term at a time. You have people ask y o u ...


...the problem is, all taxes they eventually go up, don't they? So, I mean, is your tax any better-than-anyone elses?


Presumably, we are very strongly of the view and presumably you accept the need to cut back on the size of Government and in that sense, I don't want to see taxes go up. I think we are heavily

taxed in Australia, we have to get by, the other side of that is, we have to get by with less Government, we have to do more for ourselves. That is the sort of society we want to develop and in that sense I am not about increasing tax, I am importantly

about reducing tax..


. .and politically of course, as Mr Hawke has indicated today, you could well be the object of a fear campaign. Are you worried that politically you will be the object of a sort of fear


REF: TRANSCR\0229\B&BB 11.


Well, we recognise that they will do that. They did that in the last election campaign, even though we said for example, we were going to keep Medicare, they ran a mediscare campaign telling aged people they wouldn't be able to see their doctor, or they might die before they got into hospital. But, given the time,

I think it is important that we can allay those fears. I think it is very difficult, quite frankly, for the Government to sustain a scare campaign for any length of time. Particularly, when you are putting money back in people's pockets and in that

sense, we anticipate they will run one but I don't think it will be successful and we will allow ourselves plenty of time to deal with it.


With your new whittled down Government, once you are in power, do you think people will be knocking on the door saying, I am from the Government and I don't want to help you?


Well, I would like to see Government not on the front page of the newspaper, I know it is an old line but it would be kind of nice to not see people just immediately turning to Government when they have a problem. One of the arguments we put increasingly to air that people who have come through the door asking for assistance, is people usually say look, help me, give me some assistance to live with this problem. I would rather begin by saying look, let me try and solve your problem and in a lot of cases the problem can be solved and the need for Government assistance and involvement evaporates.


We have got two more areas you want to cover, republicanism and the polls, they are both on the front pages. What about

republicanism, where do you stand, where does the Party stand?


Well, our Party position on republicanism, is that we are opposed to it. I mean, we believe in a constitutional monarchy, it has been a central part of our platform, if you like, since the days of Sir Robert Menzies. I know people are saying with the

changing nature of our economy, we are moving towards the

circumstances where people will want a republic, I don't believe that. I don't think it is inevitable in Australia. I heard that argument 25 years ago in Canada, where the pressures have been

REF: TRANSCR\0229\B&BB 12.

much stronger, if you like, for the development of a republic and they stayed with the constitutional monarchy. What disturbs me is that, the last resort I guess of the failed economic manager of the failed Government, is to appeal to patriotism and

nationalism and it came out yesterday, as an issue, as diversion.

All that we need to do or most of what we need to do in this

country, in terms of fixing up our economy, rebuilding the private sector and so on, can be done under the existing

constitution. It is a constitution that has served us very well, we don't need to be republic. A republic won't lower debt, a republic won't lower interest rates and it won't lower the

exchange rate and I don't want that to be a diversion.


Will it not make you more popular in terms of Morgan Gallop

polls, as of today in the Bulletin?


Well, polls come and go. I think Bob's showing some reflection of the fact that he eliminated Paul Keating. We have said for months that you couldn't give Paul Keating away in a chook raffle and I think that Hawke has now given credit for the fact that he

has gone, so his poll standing has improved.

But, as they say, there is only one poll that matters and we are about winning that one.


So, if his poll has gone up-because he -has got rid of Paul

Keating, why has yours gone down?


Our approval ratings, we both went down. There is a bit of

plague on both our Houses because people are getting tired of us not doing, not concentrating on issues. I mean, there has been an incessant focus on leadership and not enough focus on

restoring the economy, restoring jobs, lowering interest rates and so on.


You have got your Shadow Treasurer firmly in line, Peter Reith, he is not going to move anything?


No, Peter i s ...

REF: TRANSCR\0229\B&BB 13.


.. are you feeling comfortable? ..(inaudible)..


Very comfy in fact. Peter has blossomed not only in the job as Shadow Treasurer, where he had to really establish his

credibility with the business community and he spent a lot of time doing that. He has also blossomed as a very effective

Deputy Leader and I think back to a previous Deputy Leader, from the seat of Flinders, Phil Lynch, who was probably up till that time, certainly the best Deputy Leader the Party had. And Peter is modelling himself very much on Phil and that is managing and co-ordinating the backbench on our behalf and I think that is a very important element of why we have worked so well as a team

and you haven't seen any evidence of leaks or internal

disruptions or dispute on our side of politics for the last 15 months and in large part, that is Peter's doing in the way he has worked the backbench.


Thank you very much indeed for coming, it is excellent to meet you in the flesh and thank you for giving us so much time. We

look forward to talking to you in the future.


For further information contact Tony Abbott on 06 - 286 4457.