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Transcript of speech by Peter Reith MP



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Deputy Leader of the Opposition

E&OE

TRANSCRIPT OF SPEECH BY MR PETER REITH MP, DEPUTY LEADER OF THE OPPOSITION AND SHADOW TREASURER AT THE NATIONAL PRESS CLUB, CANBERRA, WEDNESDAY 26 AUGUST 1992

Thank you very much Ken. My colleague Senator Bronwyn Bishop, members of the press gallery, distinguished guests, ladies and gentlemen, thank you very much for that warm introduction.

Last week after a decade of Labor the Treasurer handed down the fifth major economic statement from this Government in the last 12 months. As an answer to the recession engineered by Labor it was typically unremarkable and I think quite frankly for most Australians absolutely irrelevant. As a central plank in Labor's

re-election strategy, I think it's been a political flop, and for the Treasurer has raised questions about his political

competence. And certainly any thoughts that he might have had of being Opposition leader after the next election surely must have receded in the last 8 days.

Basically, Labor's plan has been to spend its way to the next election with money that they don't have. They couldn't even manage the pork-barrelling exercise with any finesse and on the tax issue they ended last week committing themselves to the

release of a discussion paper or a white paper - an options paper - within the next 2 or 3 weeks on the secret taxes that they had said that they may never need and if they did they wouldn't need them until the mid-1990s. Now John Kerin mightn't have known a GOS when he fell over one, but I tell you what, he had the

political nous not to be threatening a secret tax.

Eight days after the Budget, Mr Dawkins finds himself still between a rock and a hard place, unable to answer the most basic of questions. And in the last 24 hours, 48 hours we've seen him

attempt to run a damage control diversionary exercise on the question of withholding taxes.

When you analyse all the possible options on a withholding tax proposal, the reality is, and virtually on his own admission, there isn't the money in it to fill his $2 to $3 billion gap.

And, on some options, it could cost him an arm and a leg to

introduce that scheme.

Even Bob Hawke said, 'Look there's a question mark hanging over this Budget'. And in a sense he was right. His mistake was to say there was one question mark hanging over this Budget, in fact I say there are fifteen.

On the withholding tax, how much will the new tax raise?

Secondly, what will be the rate of this withholding tax?

Thirdly, to whom will it apply? And will it apply to dividends as well as interest? Fourthly, what are his estimates of lost revenue and is he saying the TEN has failed dismally? Fifthly, if it is a compliance issue, why is he waiting until 1995 to

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

COMMONWEALTH P A R L IA M E N T A R Y LIBRA RY MICAH

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-if it - i-o a compliance issue,— Mhy is h<=> waiting until 19ft5— ter introduce it? On the prescribed payments system, sixth question, when will his new proposal be released? Seven, what will be the rate? Eight, how much will he raise from his reforms? Nine, what will be the compliance costs on business from the

introduction of this reform? And, ten, will it apply to the

fishing industry, to the tourist industry, to the taxi industry or whatever? And on the Fringe Benefits Tax, question number eleven, will charities, benevolent institutions be subject to the FBT? Will hospitals have to pay the FBT? Question twelve, what will be the rate? Question thirteen, what additional revenue will he raise from an extension of this new FBT? And lastly,

question fourteen, will he undertake to produce a detailed statement of the impact of these new taxes on both individuals and businesses? And, fifteenth question, lastly, will he, as we did with Fightback!, detail all the costings, all of the

assumptions upon which our calculations were made, so that the public can honestly and comprehensively judge his proposals.

Mr John Dawkins has done a very good job of destroying his own Budget and I don't obviously intend to spend much time on it. But he has raised the question, a spectre of new taxes and we

intend to hound him until he honestly tells us what he has in his bottom drawer and until he comes to the inevitable conclusion that for Australia we must introduce a goods and services tax.

I think the real disappointment for the 1.6 million Australians who are either unemployed or underemployed is the fact that this Budget really offered them little prospect of a real job. In fact, the Government itself says, that as they go into the next election, unemployment is likely to be over 10 per cent. And it

is no wonder that many Australians ended up with an impression of this Budget that it was more about the jobs of Labor

politicians than it was about creating real jobs. And I like that cartoon that had two panels, and the first panel showing John Dawkins saying 'This Budget's about jobs, jobs and jobs.' And the second panel it said, 'About Paul's job, about my job,

about Ralph's job, about Kim's job.' What a clear and succinct statement that was of the reality of this Budget.

So, the focus now must be on the real challenge facing this

country and to have a sense of the direction that Australia must take if we are to address the fundamental problems. I don't dwell on Australia's problems because I think most Australian's have a sense that this country's gone off the rails. And not

just in the last 7 or 8 years. But a sense that about 20 years, I go back to Whitlam, that basically we lost the plot and that we have failed to undertake some of the reforms that would have avoided the hardship of so many that are experiencing hardship

today.

But we do need an honest assessment of the problems because if we don't have that honest assessment, it's difficult to gather up the constituency for the big changes that Australia so

desperately needs. And, whilst there are many problems and they reflect themselves in many different ways, you can't go past the

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fact that we have a massive unemployment problem, a very

considerable debt when you assess what those problems

particularly are.

In respect of debt, the country's debt in 1983 was about $23 billion, today it's $148 billion. It's about $10,000 for every man, woman and child in the country. As a nation we are

borrowing to pay our interest bill. And you just think of the consequences of that. Think of it in respect of your own family budget. You think when you get the bank's instalment notice on your mortgage, if you have to, in paying that instalment notice,

have to put it on a bankcard you are definitely in trouble. And you are going to have to run your affairs differently. If you are running a business and when you add the instalment notice on your overdraft, you have to make an appointment to see the bank manager to get a loan to pay the instalment, then you know you might be able to afford a lunch at the National Press Club in

1992, but you won't be here next year. You're going to have to change. And so it is for the country.

And of course in respect of unemployment, sure the official figure's about 11 per cent unemployed and that's 900-odd-thousand Australians who are unemployed. But the figure is worse than that. If you take into account the underemployed there are many, many Australians who would like the opportunity to work and to work more than they do now. And even within the official

statistic, I think the two stats that really, I think, symbolise the extent of our problems, is the fact that so many of our young people don't have a job. In Victoria, for example, 1 in every 2 young people don't have a job, 1 in 3 nationally. And the long term unemployed as a number has been growing and growing. In the

late 1970s we had about 50,000 long term unemployed, in the mid '80s, 100,000 growing to 150,000 in the late '80s. It's 300,000 today and likely to grow on reasonable assumptions to 500,000 during the mid 1990s.

When you have an honest and realistic assessment of the extent of the problem, it then strikes you that there is no single

answer to Australia's economic problems. There has to be a package of reforms. And so, as we put Fightbackl together, we started with an honest assessment of what was wrong and we

finished with a 20-point plan to address the myriad of problems that do confront Australia.

Two points need to be mad e . Firstly, there is no simple solution and secondly, we don't propose a whole lot of sort of theoretical mumbo-jumbo ideas dreamt up in the ivory tower of Canberra. Most of the propositions we have, quite frankly, are commonsense,

practical responses to the real problems that Australia faces. There is a lot of criticisms about the economics profession in Australia. And you hear very good jokes about economists. The one I like is, that the definition of an economist is somebody who sees something working in practice and wonders whether it will work in theory. We don't propose theoretical propositions.

Most of the things that we are proposing have been tried before. I'm going to say more about tax in a moment. But in the tax

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system we are proposing a change and the introduction of a goods and services tax which, quite frankly, most advanced countries already have. Within the OECD most countries have this tax

system. And in fact within the Asian region, most countries have either adopted or are adopting such a reform. And in Eastern Europe as they pulled the wall and introduced free markets, what sort of taxes have they been introducing? They've been

introducing the sort of taxes that we are proposing in Australia, for the very practical reason that the sort of reform that we are proposing will in fact provide real benefits to our economy. Someone summed it up very nicely to me, I think they said, 'Oh

look did you know there are two continents on earth yet to adopt a value-added tax system?' . And I naively said 'Oh, no what are they?' And the answer was, 'Australia and Antarctica'. We are a long way behind. We need to catch up.

So Fightback! is a series of reforms. A tax being a significant part of it, but only part of that overall approach. We need to reform Australia's industrial relations system. We have a antiquated, out-of-date, unproductive industrial relations system

that needs to be freed up so that principally people can take home higher pay and so that our businesses can be more efficient and more productive and more competitive. And we need to be more competitive, both in terms of what we can sell as a nation

overseas and our capacity to produce in Australia, to give

Australians a real choice to buy Australian-made and produce jobs here at home. So we are proposing major reform to the industrial relations system. The end of compulsory unionisation and the capacity for people to enter into employment contracts at work between employers and employees to maximise the benefits for both parties.

In the area of privatisation we are proposing that there ought to be major privatisation of the government business enterprises of the Commonwealth. Again, Australia has fallen a long way behind the practice of so many internationally. In the area of airlines, for example, we are still battling to see the disposal of Qantas and Australian airlines. The Russians will have

privatised Aeroflot before we have completed privatisation here, and the whilst the Government may have in the Expenditure Review Committee decided to sell more of the Commonwealth Bank, the political pressures of veto on this Government see us still retaining a major proportion or that bank. We ought to sell it

lock, stock and barrel.

More ought to be done in terms of the better delivery of services by government, to reduce the size of government and improve the efficiency of services provided to the taxpayer. And ultimately, if you are to pay less tax, government's have got to deliver

services more efficiently, reduce the size of government thereby reducing the demands of government for revenue which is the only real solution and way to an LTP - a lower tax policy.

And there still needs in Australia to be major reform on the

waterfront, in shipping, in telecommunications and elsewhere - again, to lower the costs of providing the service and to boost

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efficiency and productivity.

And on the waterfront we still have nick-off time. That's where you work and your mate nicks off. And they still have spelling. That's the sort of thing I thought my children were learning at school, but on the waterfront, spelling is where you work and your mate spells. And for years we have put up with rorts and

rip-offs and instead of having one of the most efficient

waterfronts, the most efficient shipping service or whatever, we have services where too often the benefits that are provided after the employees specifically at the cost of those users of the service when in fact with a more efficient system you could still have higher pay, but lower costs, allowing Australian businesses to compete.

And not just in the economic area, but in terms of education. We have seen in recent years falling standards in the education system. We need a system of incentives to give people the

opportunity to reach their full potential in the area of

education.

And in the area of health, we are proposing major reforms

particularly directed to evening up the balance between the public and private sector to offset the fact that today we have queues outside the public hospital system and empty private hospital beds which ought to be utilised to provide a better

service at a lower cost.

And as a significant element of our 20-point plan, we ought to face up to the fact that Australia does not have a good record on inflation. Sure inflation is down now. It's down now because we have the worst recession in 60 years but the truth is we have

still to face the structural changes that would give us a much greater certainty of low inflation in the future. And so in

Fightback! we also address that issue with an anti-inflation strategy, including of course reforms to the Reserve Bank to enhance its independence and to focus the Reserve Bank on that task which is most likely to successfully achieve and that is, price stability.

And lastly, and certainly not least, we are proposing major reforms to the tax system and it is a disappointment that instead of an honest assessment of the problems of the tax system, we have from the Government nothing but a secret agenda.

Australians already pay consumption taxes. The debate in

Australia is not whether we should have a consumption tax. You already pay consumption taxes. If you wake up in the morning to a radio alarm clock listening to Maxine McKew at 6.10 on Radio ABC, you in fact were paying a consumption tax when you bought

your radio alarm clock. If you struggle down to the kitchen to get yourself an orange juice, the orange juice is subject to a consumption tax. Open the fridge door, the fridge is subject to a consumption tax. Mr Keating once was in the Parliament, he

said, 'Oh, you conservatives, what an outrage. You're going to put a tax on babies milk.' He's already got a tax on the babies

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bottles, babies baths, babies soap, babies nappies, babies highchairs. Even the biscuits that babies eat and even on the milk. When the tanker picks up the milk from the dairy farmer, the tanker's subject to tax, the driver who drives the tanker may

well have his salary subject to the payroll tax in the hands of the employer, the Training Guarantee Levy and the tanker runs on petrol and that's subject to the greatest consumption tax of all, Labor's hidden consumption tax, the petroleum products excise.

Paul Keating says he's opposed to consumption taxes. He's been one of the greatest advocates of consumption taxes in Australia's history. He's tripled the revenue from the hidden consumption tax, the wholesale sales tax. Not only did he publicly advocate

a consumption tax back in 1985, even before the Parliament today we have legislation to widen the existing wholesale sales tax which in fact a consumption tax.

And as you drove here today to enjoy lunch, and you stopped at the local petrol station, you weren't visiting a local petrol station, you were visiting a branch office of the tax office. He's the greatest bowser bandit in Australia's history. The debate is not about whether we should have a consumption tax, the debate is whether or not we should have a more efficient and

fairer tax system. And that is what we stand for. And not only is the existing tax system full of anomalies, they tax children's toys, but not pornographic magazines. They've got a tax on

cotton buds but not cotton balls. Not only is the debate about the anomalies of the system, we have a system that actually

imposes disincentives on a lot of the people that we need to

encourage if we are to work our way out of this recession.

Now people talk about the level playing field in Australia and that, you know, we're mad to be aiming towards a level playing field. Well I don't think we'll ever get a level playing field. And those that we compete against internationally, they do cheat

and they'll go on cheating. Whilst we'll encourage them not to do so in the future, you'd be mad in fact to assume that you'll somehow reach some utopian state in the years ahead. What we've got to do is tilt the playing field in our favour for a change. You take payroll tax, for example, half the countries of the OECD

have already abolished payroll tax. We have the second highest level of incidence of payroll tax of those remaining who still have it. As you look down a supermarket shelf and you see two

goods side-by-side, all other things being equal, and you ask yourself why do people buy that foreign good. Well, where it's cheaper, one of the reasons is that those economies don't load up their businesses with taxes like payroll taxes. And Paul

Keating, the Labor Party, they were dead right when years ago they went round the country saying we should have a national campaign to abolish payroll tax because it could create up to 200,000 jobs.

Well that is one of the seven taxes that we are going to abolish to give us a much fairer tax system. And exports, we'll see

removed from them something like $2 billion worth of tax. Those who are in the business of investing will see about $2 billion

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worth of indirect tax removed off investment as a major incentive to get the business community in this country on its feet and starting to rebuild a sustained recovery.

So, yes there will be a good and services tax but it will replace a whole lot of existing taxes. Seven taxes in all. And so it

is just a blatant political lie for the Labor Party to go around the country saying the GST will increase prices by 15 per cent. That is not true. Yes, some things will go up in price. But I

tell you what, a lot of things will go down in price. On average prices will go up about 4 per cent. On our calculations, 4.4 per cent. The Labor Party had the Treasury working hour after hour late at night trying to put a bomb in our basement on the numbers and they came up with an estimate of the inflation impact of the GST, it wasn't 4.4, it was 3.6. And, in fact, if you take a

broad measure of inflation, under our package on that broadest measure of inflation using the Treasury number, the impact is only 1.2 per cent. And the reason for that is simple. Because we are abolishing so many existing consumption taxes.

The golden equation in the tax package that we are proposing is that in exchange for that once only price impact, about 4 per cent of our package, you will receive a significant number of benefits.

If you are pensioner, your pension won't go up by about 4 per cent, it will go up by 8 per cent. So that those people after

the introduction of a GST are demonstrably better off. Not just on our calculations, but even on the Government's own Treasury calculations.

If you are a tax payer, the benefit for you particularly is

directed to put the money in your pocket through a very

substantial cut in income tax. And we are proposing the biggest income tax cut in Australia's history - about $13 billion. And that is putting incentive back into the system because again if we are to get out of this recession in a sustained way we need

a series of incentives to encourage people to change their

behaviour and work our way out so that we can have higher living standards in the future.

And not just in the income tax system, but in the related

expenditure system, we provide a series of other benefits. For families for example, as we have long stated the importance of the family unit as central to the sort of society that we have. We double the family allowance for most Australians, increasing

it at a lesser amount for higher income groups but providing real benefits to those in greatest need.

For the business community, the reforms to the Capital Gains Tax will provide again a big incentive where incentive has been eroded and undermined by Labor's tax changes of recent years. I mean in Victoria, for example, I think it's well summed up when

people say how do you start a small business in Victoria - you buy a big business and wait. And, that is true, because

incentive has been undermined and eroded in so many ways in the

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last 15 or 20 years.

For the small business community, we direct our tax reforms to the particular problem that if you are running a small business, decide to sell that business and buy a bigger business, and

invest more, put more time and effort into it and employ more Australians. In other words, if you do the one thing that we

need to encourage in this society under the existing capital gains tax system, rather than encouraging you the tax system imposes a massive penalty and disincentive. So we remove that

disincentive by providing exemptions for goodwill and roll-over relief and the like.

And, of course, in the health system, we provide incentives for people to stand on their own two feet. Stand on their own two

feet, be responsible for their own health care needs and give them the financial capacity to take out private health insurance - directing it particularly to low income Australians and those who especially depend upon the health system, older Australians who need access to reliable and secure health care, them being

the recipients of the biggest increases or the biggest rebates, tax credits in the health system.

When you put the package together one of the central themes is incentive. Incentive for employees through significant cuts in the tax burden which they today face. Incentives to sit down and co-operate at work so as to boost the productivity of the

businesses in which they are employed or individual's incentives to take out private insurance and be responsible for that. Incentive for people to save, to overcome that problem which has for many years discouraged savings. You earn what you earn, you pay your PAYE tax, your after tax dollars, you save some, you put

it in a bank account, you earn interest on your savings and what does the tax system do, it slugs you again. The double taxation of savings. And so directed specifically to that problem, to encourage Australians to save, we also introduce a new incentive, the tax-free savings scheme.

For business, the reforms are overwhelmingly beneficial. Which is why we have had such strong support from the business

community for the introduction of the goods and services tax and the abolition of existing taxes. The GST is exactly what we

describe it as - a consumption tax. It is not a tax on business. So for the business community it's a one-way street. They're having a lot of taxes they now pay abolished and not replaced.

Yes, they will collect the GST but they get a rebate for the GST they pay and they get the advantage, a considerable advantage and that is that they've got the government's money in their pocket upon the regular remittance period becoming d u e .

For families, again, the benefits overwhelmingly beneficial. And you take, for example, somebody on $28,000 a year for the average take home pay, man and wife and two children, for that family

they are a long way ahead. Their tax cut is worth about $33 a

week to them, the increase in the family allowance is worth about $20 a week to them. So, they've got $53 a week coming into the

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family budget. Ye s , the GST will cost them additional on their spending but they will also pick up the advantage of the

abolition of existing taxes. So, on balance, their extra

spending's going to be costing them about $15 a week. So,

they've got over $50 odd coming in, $53 a week coming in as an

advantage of our tax reforms. Yes, things will cost them extra, about $15 a week, on average they're $38 a week better off from the introduction of the GST.

And so you can go through each and every community group to see the advantages of major reform.

Now, ladies and gentlemen, there is no sort of tree upon which, money tree upon which, these benefits can be obtained. The

reality is that for this country to reach out for a more

productive future upon which we can base sustained increases in people's living standard, Australia is going to have to change. Yes, we've endured the worst recession for sixty years, and yes, there are a lot of people who have suffered very greatly as a

result of the recession and we must direct ourselves immediately to their day to day concerns. That is a great challenge facing the nation here and now. But there is an additional great

challenge facing us all. And that is the challenge of having to implement the necessary reforms that really will give this country the sort of future I believe that it deserves. We have in this country great resources, we have very good people, we are

in fact one of the great democracies in the industrialised world but somewhere 15-20 years ago we lost the plot. And we have to gather up a constituency for change so that people can appreciate their chance, their potential to reach the sort of society that

I believe is within our grasp if we are prepared to make that change.

As politicians, we are prepared to put our head on the chopping block and stand there and fight and advocate these reforms. There will be the greatest scare campaign of Australian political history between now and the next election. The challenge for us

all is to see through the day to day argie bargie, to come to an honest and realistic assessment of where we've got to go as a nation and appreciate that more of the same that is now offered by Labor is no answer to Australia's problems.

Change is ahead of us in the 1990s. I think the 1990s is going

to be a great decade for Australia. This is a good country. The challenge is - let's take our potential, go for it with both

hands and turn this country into the great country it ought to b e .

Thank you very much.

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E&OE

TRANSCRIPT OF QUESTIONS AND ANSWERS FOLLOWING MR KEITH'S ADDRESS TO THE NATIONAL PRESS CLUB

Q You mentioned a myriad of changes - privatisation, industrial relations, microeconomic reforms, GST, reducing the size of the Government, reforms to health and education, increasing pensions, tax cuts. In what particular sequence are you going to introduce these economic changes?

A Well, if you look at Fightback!, we have actually provided a schedule for the introduction of the reforms. In terms of industrial relations reform, that will be very high on our agenda and that of course impacts right

across the board throughout the economy and is often a very relevant consideration in terms of improving or lowering costs in the micro reform area - telecommunications, the waterfront and shipping and the

like. In terms of our tax reform, we have a quite clear agenda there. In fact we have established a timetable for the introduction of the goods and services tax, the abolition of the existing seven taxes, the cut in income tax - all specified as at 1 October 1994.

Q (inaudible)?

A Specifically? Well, I'd need to refer you ... you need

to be absolutely specific but there is in fact in Fightback! in Chapter 17 a delineation of all the start­ up dates for each and every measure. It does obviously depend on the measure. There's over 1,000 decisions in Fightback! but there is a quite clear sequence in terms of privatisation, which you mentioned in your question. We have said that we expect privatisation to be an on­

going process over the first three years of the Hewson government. We've nominated a level of returns. For example, on privatisation the Commonwealth Bank would be a major privatisation in the first 12 months of a Hewson government.

Q Mr Keith, I notice in your speech you didn't repeat the

assertion - your statement yesterday - about an extra $1.2 billion cost from the withholding tax system. You may be aware by now that the Tax Institute wasn't very impressed with the use of their work on costs in the

concessionary scheme portraying that as the cost of the overall scheme before allowing for any revenue picked up from interest that's not now taxed. In hindsight, do you regret using it in that way and do you agree that perhaps

it would help this whole debate by being a little bit more careful with the information that's available?

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A Mark, I'm very happy to repeat it. I think 1.2 is a very

reasonable figure. In fact the figure I've used is the Tax Institute's own figure and we published their paper. You can take any of the options you like, the point I was making is that this scheme - a withholding tax of 20 cents, which is all we know about it from Mr Dawkins - could cost you an arm and a leg. And the Tax Institute

paper has a major problem in it and that is that it was

prepared prior to the introduction of the tax file numbering system. And Mr Dawkins himself has said that it is working. So if it is working, it's pretty hard to substantiate the argument that there's going to be a lot

of revenue from the introduction of the withholding tax. So if you don't have much revenue, Mark, then clearly it is all down-side in terms of costs to the budget. So as to a top figure, the 1.2 is a very reasonable figure. That equates to an open-ended tax concession of 20 cents on interest earnings, so I don't stand back from that

figure. I don't regret it. It's a very reasonable figure.

Q Mr Reith, one of the major criticisms you and Dr Hewson

have made of the budget is that the Government's been creating only short-term jobs with money that they don't have. Now if you were in office now and it was your

budget, would you have done anything for the short-term unemployed or would you wait for your reforms to come through, which could take some considerable time?

A Well, the reforms that we are proposing, I think, Tom,

will in many cases provide jobs immediately and I think it is wrong to assume that some of these structural reforms will necessarily, you know, be long in the coming. The industrial relations reforms - for example, the Austrain scheme - just the freezing of the

superannuation levy in itself can be a major encouragement and incentive to the provision of jobs. Now I don't overstate the ... and don't wish to

unreasonably raise people's expectations about job creation but I think you can go too far the other way and say that, you know, structural reform is jobs on the never-never. I don't think that is true and in fact I think our programme will encourage jobs and we'll have a

lot of, you know, early benefit from the package that we are proposing. If you take the payroll tax, in '94 - and that day is ever closer - I think that has tremendous potential for creating jobs relatively quickly. I can

give you some anecdotal evidence - I'm just talking some of my local employers and you go and ask them, "If you had payroll tax abolished tomorrow, do you reckon you'd put somebody on?" and a lot of them will tell you that

they would. So I actually am very optimistic about the job creation prospects of the package of reforms that we are proposing and, secondly, in terms of the existing programs, we are of course, to the extent that we've remained silent on existing programmes, retaining a

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number of existing programmes whilst reforming them in some other areas. So y es, I think we have a very solid

response to the problems of today but as well as addressing the problems of tomorrow.

Q After a severe recession and ten years of Labor it must

be disappointing for you that business, big business in particular, seems to not have grasped your Fightbackt package. In fact some, including Ford and BHP, seem to be expressing some big reservations about it. I understand Mr Nasser of Ford has warned that his company could cut future investment in that industry if the Coalition pursues its zero tariff policy. How are you going to convince them to change their minds?

A I think it's wrong to look at bigger business in

Australia and see them as some sort of uniform, homogenous group. And on tax, for example, they have been near unanimous and certainly as unanimous as on any other issue and in my experience in recent years on the

tax issue they've been very supportive. I think you'd find Mr Prescott and Jack Nasser, the two that you mentioned, would be very positive about elements of the tax package. The abolition of payroll tax will obviously be a major cost reduction for those businesses. I think when you're talking about the business community also you

need to look beyond the Business Council of Australia or big business. For example, the CAI has been very strong on industrial relations reform and so has David Edwards and the Victorian Employers' group. In fact, they have

shifted their position a long way in the last 12 or 18 months and they've certainly moved to the ground which we have enunciated in Fightbackl. Now you won't get them all on side all of the time and obviously with, you know,

an issue like protection and the related issue of industrial relations for some of them, it is going to be a matter or talking them through the issues and, you know, debating with them the benefits of the cost reductions that we are producing. I don't expect to always have unanimous support from the business community. From time to time, you know, we will have a public difference of opinion and I think that's how it ought to be in a healthy democracy. But as long as you

can sit back after it and have a beer with them and, you know, have it on an amicable basis. And lastly, I'd make this point to y o u . The package that we have is unquestionably, unequivocally, unashamedly pro-business. We are walking over hot coals for the business community

to provide them with a system in which they've got a chance of competing. And that is the only way in which we will have a sustained recovery in Australia. And I do think that generally speaking many in the business

community have been very supportive. I would like to see them, you know, go further. Sure. And I think in a

bipartisan way every business in the country in the pay­ slips, pay-packets, as they send them out before the next

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election they ought to say to people, "Well, one of the good things about GST is that it means the abolition of payroll tax and that means your job's more secure in the future". I think they ought to take a pro-active, you

know, role, as many of them have, in pushing for the tax reforms that we are proposing.

(inaudible)?

I'd be very happy to define the business community.

Alan Bond? Christopher Skase?

Well, I don't think they'd qualify today. But no, the business community is just the sum total of all those good Australians out there who are struggling to, you know, get a roof over their heads and to educate their children and to build up their family assets and have a

higher standard of living. And our policy's directed to trying to give them some encouragement, a helping hand, and in many cases to get the Government out of the way and to have a government which is supportive and not inhibitive, as it's been in the past.

While the opinion polls show the budget's been given the thumbs-down by people, the polls also show they haven't entirely accepted that Fightback! is the way to go. When both you and John Dawkins say you've got the only plan which will work and have facts and figures to back you

up, why should people believe you and are they right to be cynical and say, "Well, yes, you're both interested in jobs - John Dawkins in keeping his and you in taking it from him"?

Well, people are naturally cynical about politicians and quite frankly I don't blame them. I think the political process has been, you know, has failed in terms of economic management for the last 15 or 20 years and people are right to scrutinise everything we say and question our motives and I say that's fair enough. All I can do is tell people honestly what we are proposing to do, how we see the problems and give them an honest assessment, you know, of the solutions that we're putting. On the tax issue, I think people will be naturally very suspicious of a government that is not prepared to tell them what they are actually going to propose and, when we do get something from Mr Dawkins,

most people will appreciate that we've had to drag it out of him, you know, bit by bit, tooth by tooth. Lastly, on the question of the GST, which is perhaps inferred in

your questions - the sort of sharp end of this - the research that we've had done shows an increasing acceptance of the GST. If you say to people, "Are you in favour of tax reform - including the introduction of the GST, a one third cut in your income tax and the abolition of other taxes?", in the last three or four years you've

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seen a big ... an increase of about 10% in the approval

and a falling off of the disapproval. And we are mounting a massive campaign around the country with pamphlets, letter boxing, direct mail, telephone canvassing, public meetings - 700 or 800 of them. And I

think there is an increasing awareness of what we are proposing and acceptance of what we are proposing because people can see that we are genuinely putting up a set of solutions and we're prepared to fight for them. But ultimately the public makes up their mind - that's one of the good things about a democracy.

Q The National Party Leader, Tim Fischer, is expecting a by-election in Capricornia. Are you expecting a by­ election in Capricornia and who do you think will win the swing required to pick up 7.4%?

A I don't have any expectations about Capricornia, David, but obviously where there's a by-election - when and if there's a by-election - we would normally be contestants to a by-election and we would go in expecting to win. And if there's a seat where there's a by-election of 6 or

7%, we'd certainly give it our best shot.

Q Where does the Coalition stand on the falling dollar? Tim Fischer seems to welcome it. John Hewson yesterday said that it augers badly for Australian living standards and for inflation and in fact it's the judgement of the markets on the budget. And do you believe that the

Reserve Bank, indeed a more independent Reserve Bank, would have a greater freedom now, for example, to halt the slide on our dollar and on our bonds by taking the politically unpalatable decision to up interest rates? And if your reforms came in, they may well do that because there would be no government input into that

decision.

A Well, there's a lot of questions in that, Paul. Let me

try and pick up some of them.

Firstly, on the question of interest rates I would point you to a very interesting analysis of the interest rate question that Treasury put together when we put

Fightbackl out and their analysis came to the conclusion that the introduction of a tighter fiscal policy by the Coalition would actually see interest rates come down. And I'm not surprised at that conclusion but I think that

it's an important one and you'd need to factor that into any calculations. I don't have a crystal ball as to interest rates into the future but obviously our objective is to lower real interest rates. And that's not just a matter of pulling the lever. That's a matter of actually getting some fundamental reforms in place

that will see interest rates come down and stay down.

In terms of the commentary on the fall of the dollar in

the last 24 hours, I must say I was absolutely amazed at John Dawkins getting stuck into John Hewson over the issue because it was only April last year that

John Dawkins gave one of his more celebrated speeches to a telephone box minority in Carlton where he actually advocated as a Minister of the day some process of manipulation of the Australian dollar. And I really do think he's got egg on his face after his comments last night, which I can only put down to the fact that the guy's had a rather bad week and the pressure's been getting to him.

Thirdly, I mean, our policy position obviously is to support a floating dollar, floating exchange rate. There can be a role for the Reserve Bank in, as they describe it as smoothing and testing, and that's a matter for them to exercise in their professional judgement. Ultimately the dollar is going to reflect the fundamentals in the

Australian economy and certainly an adverse reaction to the budget would have been factored in by, I'm sure, the money markets and we have been warning the Government well prior to bringing down the budget that, unless they

took a responsible attitude to the deficit, then they may well face the risk of an adverse reaction from the markets and I think to some extent we've seen that evident in the last 24 hours.

Industrial relations you've nominated, and of course it's been said a number of times, is very high on the agenda when it comes to the Fightbackl reforms. And of course history would suggest that in the short-term at the very

least industrial relations reform does create a lot of protest in certain quarters of society, a lot of concern from the entrenched interests in the area. So I've got a brief double-barrelled question. First of all, what do you see as the key differences, if there are any, between

the IR reform proposed by the Coalition and by Jeff Kennett down in Victoria? And, secondly, is there any danger that the short-term protests that the Kennett agenda is likely to create if he's elected will rub off on your own position?

Well, the Victorians have, as you know, just put theirs out and I've quite frankly not had a chance to go over the details of it. I think the significant thing about the Victorian policy, though, is that it's certainly

lining up with the direction that the federal Coalition has been pushing for some time now - which is basically to give people the right at work to enter into contracts. And we welcome that. I think that's been a significant

policy initiative of Kennett's and will be one of the driving factors in a reform of the Victorian economy. It holds out the prospect for employees of higher take-home pay and it's been absolutely bizarre for Joan Kirner to, you know, run this attack on New Zealand because I've

just come back from New Zealand and, if you look at an

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analysis of the contracts entered into in New Zealand with the Department of Labour, you find that in 91% of the cases people have either retained their existing wage or had an increase in their wage and, of those, about half have had an increase exceeding the inflation rate,

so they've actually had higher take-home pay. So I think the significance of the Kennett reforms is that we are both going in very much the same direction and obviously we will be saying more about industrial relations through

John Howard in the near future.

As to this prospect of all hell and chaos breaking loose with the election of a Coalition government with the trade union movement, you know, kicking over the traces to keep us from implementing our policy - that is just

the same old scare campaign you've heard before every election in the last 20 years. And it's never true. And if you go around and talk to industrial relations, trade union, leaders - talk to them behind closed doors -

they'll virtually to a man and a woman tell you that they'll cooperate with an in-coming Coalition government.

Q Be around on Monday morning after the election!

A That's right. They will be around on Monday morning after the election but, I tell you what, they won't be coming in the front door with the red carpet as they do now! So the bottom line is ... The great irony of it,

the great irony of this whole debate about industrial relations ... And understandably, the trade union leaders are all card carrying members of the Labor Party and they'll say anything to keep the Labor Party in office and they want the Labor Party in office because basically they're putty in their hands when they get

there. But the great irony is that we are proposing a policy that will actually put the pressure on employers to sit down with their employees and improve employee relations. And that is certainly evident in the

jurisdictions that have the sort of, you know, employment contracts process that we are proposing and just makes a complete mockery of Labor's claims about confrontation.

Q I want to follow up aspects of the previous two

questions. On industrial relations, you've said that the Victorian policy's going very much in the same direction as that which you propose to take. Could you say whether in the key question of whether workers will have to choose ... will they have to agree with their employers

on whether to take part within the industrial relations framework or whether they'll have to elect to opt out? Will you be following the Victorian policy in requiring (inaudible) to agree if they're to work within the

framework. And, on the exchange rate, I'm still very confused about what your view is about whether a lower dollar is a good or a bad thing. Dr Hewson said on

several occasions that the dollar's over-valued and that

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it should be lower but in the last few days he's been saying the bottom line is that it'll bring lower living standards to everyone.

A Right. Thanks very much.

Well, the federal policy at the moment as you know is that you have under us a right where parties mutually agree to enter into employment contracts which puts you beyond the jurisdiction of the Industrial Relations Commission. The Victorians have a modification to that position and there is to that extent a difference. But my general point is that it's a minor difference as of

today and obviously there's a bit of speculation around that, you know, there might be some further development of our policy on industrial relations. But I'm not here to canvass those matters. I'm sure you're more than able to ring Mr Howard and ask him. He's in Perth.

On the question of the dollar - just lowering the dollar is no solution to your problems. In fact, the Australian dollar's been lowered over the years. Rather than take just the, sort of, short-term volatile look at this - if you go back 15 or 20 years you've seen the Australian dollar coming o f f . And we've not, you know, picked up

any advantage from that. In fact, we've still got all our problems still there staring us in the face. And I think it is generally true that the stronger economies

tend to have stronger currencies. It's also true, and not inconsistent to note that, in recent years in Australia there's been a lot of upward pressure on the Australian dollar as a result of high interest rates.

And that has, you know, set up incentives to encourage imports and to discourage exports and to that extent, where you have such a reliance on monetary policy as we had during particularly the late 1980s, you do set off a

distortion which, you know, puts an upward pressure on the Australian dollar. I mean, basically, we want to get the fundamentals rights and have a free and floating

exchange rate. And if you get the fundamentals right - particularly for Tim Fischer's constituency, what we are going to do for them is reduce their costs. Massively reduce their costs. And we're talking just in the tax

area alone, using the Treasury figures, of about $1 billion. And that National Farmers' Federation analysis shows you, you know, the sort of benefits on a farm basis - I think ranging from you know 7 to 22%. And

that ultimately is the real answer. The dollar, the value of the dollar, is the consequence of the fundamentals. It's not the other way around.

Q So a higher dollar (inaudible) the Coalition view that at the moment it's a bad thing?

A Well, no. I'm not predicting the course of the

Australian dollar now, let alone over a 12 month period.

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I'm simply saying to you our policy position is to continue the floating of the Australian dollar and, secondly, to undertake major reform - which will obviously impact on the value of the dollar as people appreciate the benefits of the reforms that we are putting in place.

Q I'm still a bit puzzled as to whether the fundamentals

mean that we'll have to see a higher or a lower dollar.

A Well, Tim, I don't sit here with a crystal ball. I mean,

I don't claim any greater capacity to forecast the course of the dollar than anybody else.

Q We'll let that pass. I wanted to actually ask you about

Fightback!. Dr Hewson in the week before the budget told the forecasters in Sydney that the Government should be bringing in a deficit of around $6 or $7 billion and Fightback1 itself, of course, proposes to take $8 billion out of the economy in the first year of a Liberal government - about $4 billion through spending cuts and about $4 billion through asset sales. That's 2% of GDP. Do you really feel, when you've got 11% unemployed, that this sort of restriction on the economy - this contraction of it - is justified? And do you accept that there is a place... When you're Treasurer, do you accept that there is place for economic fine ... using the budget, for economic fine-tuning or would you say the budget should be set solely with regard to medium term goals?

A Well, I think we've had, you know, the experience in

recent years of the Government failing on the sort of fine-tuning lever management course and I think you really ought to set a medium-term goal for fiscal policy. I don't accept the Dawkins claim that there's 125,000 job

losses as a result of the lower deficit that we are proposing. He's never produced his numbers. If he wants to run that argument he should produce his numbers. But

I also find it rather odd that, again, the Labor Party should run that line because if you go back to the late '80s - and Peter Walsh was always very strong on this - he's often remarked, in fact as late as that article of

his in the Left Review earlier this year, he remarked that the tightening of fiscal policy at the federal level was accompanied by an increase in employment, not a decrease of employment. And the Government itself, as I referred to earlier, has said that a tighter fiscal policy will actually lower interest rates. And by

lowering interest rates you are lowering the costs on the private sector, giving them the capacity to employ more people. And again, that is a central thrust of what we are trying to do - which is to lower costs on business so that they can afford to employ more people. And all

through our policy prescription, whether it's in industrial relations by lowering unit costs - still

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allowing higher take-home pay but lowering unit costs - you can make them more competitive. They can employ more people. Whether it's a cost to capital with interest

rates through a tighter fiscal policy so that they can afford to employ more people. Whether it's in the tax system with the abolition of existing taxes - again removing costs of business. And lastly, of course, in the micro reform area - lowering the costs of shipping, of transport, of communications or whatever so that our businesses can be more competitive - competitive against

imports so that we can produce more in Australia, produce more jobs in Australia and competitive in export markets - again to produce jobs. And so, I just think

that claim that there's this link is, you know - some inexorable link - is just nonsense and certainly not based up, you now, with any evidence. In fact, the evidence of the late 1980s goes the other way, so I just reject it. And just lastly, just so you've got our

figures right on Fightback!, the expenditure restraint's about $3 billion and the asset sales is closer to $5 billion.

Q Just back to the dollar. Dr Hewson seems to have quite

strong views on the fall. Do you not agree with what he's said and, presuming that you don't disagree, where do you think the dollar should be - higher, lower or do you think it's all right where it is?

A Well, I'm often tempted by the press to, you know, to put

some figure on the dollar and I don't claim any particular expertise in being able to forecast the value of the dollar from day to day. You're right to presume that there's no difference between Dr Hewson and I on the

issue. We simply say that, as I've said earlier, the dollar ought to float. We certainly support that policy and to have a truly free floating dollar you need to undertake some of the major reforms that we are proposing. And if, for example, you jack up interest

rates as Labor did during the 1980s - obviously that will have an impact on the dollar. And we are proposing a much lesser reliance upon monetary policy, lower real interest rates, lower inflation, lower nominal interest

rates and so therefore allowing the market to more accurately assess what they see as the value of the Australian dollar. So, y es, it's been high but because of the way in which government has run monetary policy. We are proposing less reliance upon monetary policy, a

tighter fiscal policy and we think that obviously that will have an impact on the dollar but I don't today attempt to predict the course of the value of the Australian dollar. I would remark, though, as I did before - and that is that if you look at the experience

of many others, the stronger economies over time tend to have stronger currencies.

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