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Transcript of address to Australian automobile dealers association 1992 national dealers convention, Surfers Paradise



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Leader of the Opposition

5 June 1992 TPT: GC/0002/BQ

DR JOHN HEWSON, HP

TRANSCRIPT OF ADDRESS TO AUSTRALIAN AUTOMOBILE DEALERS ASSOCIATION 1992 NATIONAL DEALERS CONVENTION, SURFERS PARADISE

E & 0 E - Proof Copy Only

Thank you very much Brian Phillis for that very warm

introduction, other distinguished guests, including Evan Green, Ladies and Gentleman.

Let me begin by congratulating Ron and Jill Logan on the award of the Dealer of the Year, I think it is a fantastic thing. I particularly enjoyed the anticipation that was built up in the room before that award was announced. It is the same sort of

anticipation we have in Parliament House looking for Paul Keating's next policy flip-flop.

You might have noticed in the course of the last week there has been a bit of interest in the fact that he made what he described last night as 'a normal investment' of nearly half of a million dollars in a piggery. He's obviously feeling very sensitive about that and he was desperate to relate it to me, so he said, 'well that's even worth as much as one of

John's Ferrari's', I'm very pleased to hear that. Not only because he has given me an extra couple of Ferrari's, but if I can get half a million dollars for a 308 GT4, I will be

absolutely delighted.

His capacity with numbers in that example is the same as his capacity with economic numbers in terms of budget preparation and so on, as we have also seen in recent years.

But I am very pleased to be here today at the Australian Automobile Dealers Association and to have the opportunity of giving a keynote address. I believe in your industry, I believe that we can build a bigger and more dynamic motor

industry in Australia, even without tariffs. I believe we can build a bigger and more dynamic Australia. And that is really what Fightback! has been all about.

I thought the best thing that I could do today given that we have about a half hour for questions and I imagine that there are one or two areas of the package that you want to cross examine me on in detail, I thought I'd like to give you a

somewhat broader perspective of why we think change needs to

Parliament House. Canberra. Λ ( I 2600 Phone 277 4022 COMMONWEALTH PARLIAMENTARY LIBRARY MICAH

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be made in Australia and then narrow that perspective down, if you like, to your particular industry and how I see that you can have a dynamic car industry in Australia and one that offers not only, I think, a better range of better priced cars but also I think tens of thousands if not hundreds of

thousands of more jobs when you add up what can be created in industries that spin off your industry as well.

It's always hard to say why an Opposition decided to do what Opposition's never do, which is lay down a very detailed policy agenda to get out in front in the debate, to take all the political risks and the political flack and try and win an election with what some people have said are politically difficult, if not impossible policies to sell.

But it has been a very strongly held belief of mine since before I came into politics that it's about time our nation had a degree of maturity and that we were prepared to debate issues on their merits. I believe in the electorate of Australia, I believe they will not succumb to the sort of

scare campaigns they've already been subjected to and will continue to be subjected to. I think most Australians know that the way we have done things in the last couple of decades

hasn't been right, that we've squandered our opportunities and I think they are looking for that hard headed type of

leadership in these very difficult circumstances.

I personally have been embarrassed, and that's what motivated me really to come into politics, but I have been embarrassed about the extent to which Australia has fallen off the pace, not only against the countries that we have traditionally measured our performance like the United States and the United

Kingdom and Europe but more importantly our near Asian neighbours who are out-performing us on a daily basis.

I remember one of my earlier trips as Leader of the Opposition to about 8 or 9 capitals in Asia and a two-and-a-haIf hour meeting with Lee Kuan Yeu who spent a substantial amount of time telling me how badly we were doing. As much as I

wouldn't want to try and graft a Lee Kuan Yeu style system into Australia, nor would I advocate a Lee Kuan Yeu leader, I couldn't help but feel particularly embarrassed that there was so much truth in what he said about the opportunities that have been there for a country that is as wealthy as ours and as well placed as we are, uniquely placed in many respects on the edge of the fastest growing region of the world and yet we've so dramatically fallen off the pace. I think one of the

things we've got to do in Australia is change our role model and start to look to some of those Asian neighbours as a bench mark against which we measure our performance and that then starts to show you the extent to which you have to lift your

game if we're going to make our mark in the world.

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I see the theme of your conference is "The Competitive Edge - Winning Through Knowledge". We already have a break on that in the sense that we are well endowed with knowledge and basic skills. We have a very articulate and well-educated work

force in Australia. We have a capacity in brain based

industries that other nations just don't have and if we face the reality of what's got to be done we can have the

competitive edge that is necessary to make our mark in the world and particularly in the Asia-Pacific region.

It wasn't just that economic motivation that had bothered me. It's the fact that when you look at our economic circumstances you see that we are, as a generation of Australians, about to leave a lower standard of living to our children that we in

fact have enjoyed ourselves or that was left to us by our parents. That really starts to bring it home to you. My son left high school last year and I sat down with him at one stage and we compared his range of opportunities in education and in the work place compared to what I had in the early

1960's. I had the opportunity, I'd already arranged three or four jobs or cadetships depending on the quality of my pass and the then Leaving Certificate. I was going to take one of those. I never expected to be able to get into University and the type of school that I came from didn't have a great track record of putting people into University but I waited for the results anyhow. As it turned out I won two scholarships to University. I had choice of University. I had choice of programs and I had four jobs up my sleeve. He didn't have any of that. 60,000 kids this year didn't get into University and

a hundred to a hundred and fifty thousand kids didn't get into TAFE colleges or other technical institutions around Australia and one in three kids can't find a job and on the numbers that

are there today will not find a job for a substantial part of the first half of this decade. In fact, on recent policies we will still have an unemployment rate of 8 1/2% to 9% at the end of the decade. You think about that and you think about what that means not just in economic terms to Australian

families and young people in particular starting out but think of how that economic pressure will spin off into other social pressures, financial pressures, family breakdown, youth homelessness, drug abuse, crime, violence. I don't make any

apology for drawing people's attention to the consequences of those economic circumstances in a social and a human dimension because they are very real and a whole generation of our young kids are going to find out how tough it's going to be to get a

job, to get an education, to get married, to settle down, to buy a house, to even buy a car.

It's those sort of motivations: our standing in the world and the fact that we've fallen so far off the pace domestically; that we are about to leave a lower standard of living to our children; that convinced me that it was about time we stood up

and were counted for what has to be done in Australia.

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So Fightback! simply started as an exercise that was totally apolitical. Everyone was told, do not look at the politics of this issue, look at the circumstances of our industry in Australia, in particular, and let's determine what has got to be done to match the best in the world - go out and get the

best people, get the best knowledge, get the best advice and determine what should be done. And when that package was put together we then sat down and worried about how to market it. How to explain it. How to get the detail across to people. So it represents the most honest and detailed attempt ever put down by a Government or an Opposition to deal with our

problems. And sure, some days where you find the political going tough, particularly when the bloke on the other side doesn't let a fact stand in the way of a good argument;

doesn't bother about the truth as long as he can score a

political point. Life gets very difficult but I think it is worth fighting for because the consequences of not making the sort of change that we want to make is fundamental.

It is not just a change, however, of policy and it is not just for the Government to do. So much of this today is "what's the Government going to do about it". In most cases I think the Government should do very little and get of the way. Put the basic policies in place - that's the easy bit. But

staying out of things like industrial disputes, staying out of the constant barrage of industry and special privilege assistance that is sought, staying away, telling people, basically, it's yours. Create the circumstances in which we put faith in you. Get off your back. Get Government out of the way and leave you to organise your lives and make the best of your lives - as individuals, or as families, or as business people.

That really is the motivation. The message is very simple - if you want to have a competitive edge, you have got to have a better cost structure as a business than anyone else in the world, or anyone else in the markets in which you compete. If you don't have better cost structure, you aren't going to make

it.

So the motivation of Fightback! from the point of view of business is to take Government out of the way. To move very quickly to reduce the size and influence of Government over business and the extent to which business is taxed by

Government or the extent to which cost disadvantages are inflicted on you by Government. We eliminate $20 billion worth of tax, things like payroll tax, petrol tax and sales tax, which are massive cost disadvantages to you. You should

do the sums between industries in Australia and other countries and see how much difference that will make.

We say $20 billion worth of tax because we just added them up - sales tax, payroll tax, petrol excise, about $20 billion. In fact, the cost disadvantages are multiples of that because it gets built into the system several times in getting to the

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final price of any item. Take a car that is produced in

Australia, go back to the raw materials and count the number of times payroll tax or sales tax or petrol tax directly or indirectly gets built into the final price of a car. And then look at the way the Government adds tax to the final price of the car and to the petrol that goes into the car and to the lubricants that are used in the car. And when you eliminate

that and the cascading of all those taxes the whole cost base of the industry falls dramatically.

Now economists are not sophisticated enough to be able to estimate the extent of that cascading. But $20 billion is a big number, it is two thirds of the total tax the whole

business community pays in any year. But it is a multiple of that that you are looking at in terms of the cost base

improvement that will flow into Australia. And in your industry, I think you pay about $3 billion of the sales tax in the motor trade as a whole. About a third of the sales tax collected in 1991 was associated with your industry. You imagine when you eliminate just that one tax from the point of view your industry, not just in the price of cars, but the price of everything you actually do and you have a chance to become genuinely internationally competitive.

And it is not just though. Every time you turn around you get slugged - power costs, labour costs, on-costs in particular, transport costs, waterfront charges if you are an exporter or an importer, they are massive cost disadvantages and they are all built into the system as well. So Fightback! simply set out to eliminate the cost disadvantages under which our

industries operate. Your benchmark is the best in the world and you measure your cost disadvantage off that benchmark and set out to eliminate it. And Fightback! really does just detail how those cost disadvantages, from your particular point of view, can be changed.

I guess the centrepiece is not tax, really it is industrial relations. Which is not just a change in the system but it is a change in the way you will be able to do business. In a lot of cases we have got to get the situation where you can

negotiate basic terms and conditions of employment with your own workers, with or without a union, that ought to be their choice, at the workplace and not be ridden over by some ACTU representative or somebody else buying into the process.

The Bernie Pulp Mill dispute is a classic example. The company is not internationally competitive, they are facing the prospect of very difficult circumstances, indeed they may even have to close. So they say to the workers, why don't we

negotiate new labour market conditions to get rid of some of the loadings and over award payments that have been built up over the years in better times which we can't afford. But build a system whereby if you lift your game you will get more

incentive, you'll get more income back in your pocket. So they've offered the workers, as I understand it, a 25% across

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the board over award payment. They've offered them generous redundancy packages, increased superannuation and a 35 hour week. And the negotiations they wanted to take place were about some of the other loadings. An absolute ripper is this

thing called the 'call-in allowance', you don't finish your shift so your colleague is brought in to finish your shift. That 'call-in' costs 9 hours pay for the first hour that they are on the shift and double time for the rest of the shift. You spread that across an industry in the context of a closed shop and you see how big those cost disadvantages are in that

industry. It is economic lunacy. We all know that rostered days off, leave loadings - pay ourselves more to go on

holidays than we do to go to the office - and all the crazy allowances that have been built up industry by industry. There is one in Sydney they were working on the Pitt Street Mall, they gave them an abuse allowance of $50 a week. I felt

justified standing there swearing at them when they are getting paid for it. Down at Darling Harbour, they could smell China Town in Sydney, 'Dim-Sim allowance', the cost of a Chinese meal a week so their stomach juices didn't go. Hot weather allowances, cold weather allowances, every other damn

allowance you can think of.

Which are all indications of the extent to which a lot of our operations become internationally competitive. The best I ever heard of was an allowance of $16 a week for cemetery

workers, grave diggers, not to smile at funerals. The first time I used that I told it to an aged audience, you can

imagine it went off like a lead balloon.

The point is though, a very important point, those on-costs and so on are crazy. And they should be determined - wages and hours and structures - ought to be determined above certain minimums at the workplace. And the phenomenal benefits to a country like Australia of that sort of change

just cannot be underestimated. We could have a world class waterfront, a world class rail system, a world class power generation system, we can do it but those sort of decisions have to be addressed. Those sort of add on costs and

inefficiencies have to be eliminated. Not in a way that makes it worse for the worker, I think in a way that makes it better for the worker. And SPC is a good example in Victoria, they were faced with the prospect of closing down, the workers were

given the chance, they asked for the chance to negotiate a new wage deal. They would give up the rostered day off and the Saturday loading and the leave loading for a year or two or whatever and they asked for a profit share in return. They

then changed their attitude, boosted productivity by 50% in the next canning season and they're all doing better. The company is doing better and Australia is doing better because that company is a significant exporter of canned fruit as well.

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I went down there a couple of times to see them, at the time of the dispute and some time after the canning season had started, to just see the attitudinal shift that had taken place. The workers were keen to make the change and they were to make sure they benefited from the change. I went into the smoko on the second trip, sat down next to some guy that

didn't look like my type of voter, said 'you guys have done pretty well, increased productivity by 50%'. He said, 'you ain't seen nothing yet!' And I had a look at the production line, I couldn't stand there all day looking at millions of

sliced peaches going by, making sure they're on standard, two million cans a day - but it can be done. The structure can be changed, the wage deal can be changed and most importantly the attitude can be changed. If we want to be internationally

competitive we can be.

It has always fascinated me that in sport we are super

competitive and we really get down on those sporting heroes that don't make the grade or fall off the pace. Greg Norman is a hero one day and a villain the next because he has

dropped off the pace, he is only 12 under par instead of 16 under par.

We take that attitude into sport. If it comes to beating the poms at cricket or the Americans in the America's Cup or the New Zealander's at rugby, doesn't matter what it is, we all get into it, even if we don't know anything about it.

But when it comes to matching the best in the world in terms of economic performance, on the job practices and cost structures and attitudes to work, we give up - it can be done.

So, really Fightback! builds that sort of structure. From your point of view it eliminates those cost disadvantages and provides an opportunity for you to get on and do what you have

got to do. Cut Government expenditure by $10 billion, $15 billion worth of privatisation in the first 3 years,

Government will be dramatically smaller and individuals get it back. Get it back through the tax system, get it back through other benefits.

It is no good just changing the industrial relations system and some of those other things I mentioned. If you don't back it up with a personal tax system that makes it worthwhile and with a capital gains tax system that eliminates the problems

of abuse and cheating in that area, but gives you an incentive to build a business and keep the value of your business.

In the personal tax area we face very high personal tax rates at very low incomes. $20,700 you start paying 38 cents in the dollar plus the Medicare levy. And at $35,000 or $36,000 you

start paying 46 cents in the dollar. Average income is somewhere between $25,000 and $30,000 in Australia. So you don't have to be much above average income to work half your time for Paul Keating. Most people don't think that is

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worthwhile. A lot of people don't think it is worthwhile working any time for Paul Keating but in the tax system sense it is crazy isn't it - no incentive to work, no incentive to take on an extra responsibility, no incentive to save, you go backwards if you save in most time, after the last 10 or 15

years most people have gone backwards in real terms, in terms of their savings, no incentive to take on overtime or

whatever.

So we go for a 30 cent tax rate to double average income, that is to $50,000 a year; a 36 cent tax rate to $75,000 a year. You will pay less tax at 3 times average income under our income than you pay today on $20,700 a year.

But it is not just the marginal tax rates, as the economists call it, what tax rate you pay on the last dollar, but it is the average tax rate. At average income, $25,000, under our

system you pay 14 cents in the dollar tax, you keep 86 cents in the dollar. And at $50,000, twice average income, you pay 22 cents in the dollar tax, you keep 78 cents in the dollar.

People say, why don't we have a Hong Kong style tax system and give people real incentive, that's it! It's there! The incentive would be phenomenal, the cut in personal tax is one third.

And so with the capital gains tax we have made changes, you can build a business, roll your business over and keep the value of your business. You can use the business to build up a nest egg for your retirement. And those changes are

important to back up in the industrial relations change, so people have a chance not only to earn more under the

industrial relations system but to keep more under the personal tax system.

So, I won't go on, the package is way beyond that, it goes into immigration, it goes into education, it goes into training, it goes into health, but each element of it backs up the other with a particular focus on you, on individual Australians. The Government gets out of the way, gives you

control back over your lives. You make the decisions, you run your businesses, you keep value from your business, you work harder you gain. If we all lift our game, you gain, the

country gains, just like the SPC example.

Individual financial responsibility is also yours. If you are genuinely needy you get assistance at the bottom. As you go up the income scale we take the assistance off you. And at certain levels you are expected to take care of yourself and your family. That's how it ought to be - the genuinely needy we have a responsibility to look after them and actually give

them a better break than they've had. But if they are not genuinely needy and they're rorting the system or finding some way to qualify for a benefit they shouldn't get, well they ought to lose. Just so that you don't spend the great bulk of

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your time paying tax to look after somebody else's family before you get to look after your own. And they're they

essential elements of the Fightback! package as an approach - it's policy and it's attitudes and values.

We think you have got to change a whole generation of

attitudes and values in Australia. I go back to Whitlam and I think of the dependence on Government that has been built up in the last 20 years. Not just welfare, business communities built it up, they belt us around the ears all the time, 'can you give us this benefit, you can give us that tariff, can you

give us that assistance?' It's crazy because we can't afford that sort of attitude in Australia and it is counter

productive to what's in our best interests.

As far as your particular industry goes, there are obvious benefits from that sort of package to your industry. An industry that is heavily based on small business which is, after all, the backbone of this country, and where all the wealth and the jobs have got to be created. It is designed

particularly to benefit small business.

One of the most controversial aspects of our package though from your point of view is tariffs. Why does this bloke want to get rid of tariffs? Well it is part and parcel of becoming internationally competitive. Tariffs have been a major

inefficiency in our system. They have allowed unions to build up massive power behind tariff walls. One things has led to the other and when you isolate yourself, you breed an

inefficiency, you build on that inefficiency and you pay.

The average consumer, according to the Industry Commission pays about $4,000 more per car because of tariff protection. Now I'd rather give them cheaper cars and cheaper petrol and let the demand go up and build a bigger industry. But I don't want to do it in a way that drives people out of business.

And I have no doubt that if you just cut tariffs, as your industry knows, you gradually bleed that industry to death. If you just cut tariffs, if you cut tariffs and do a few other things to increase your cost disadvantages, then you bleed twice as fast, or maybe three times as fast. And the big problem with the Car Plans in the 1980' s were that you bled very fast - tariffs were cut, interest rates were doubled, the exchange rate appreciated, all those other cost disadvantages were compounded and it became increasingly difficult in

business and particularly your industry to make a living. The industry got scaled down.

So what we have done in our tariff policy is to commit to basically the elimination of protection by the end of the decade. There still might be 5% in some industries, but I want you to understand the approach.

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Let's assume we are in Government by June 1993, and I use that, I'd like it to be next week, but we'll give him his full run to June 1993. Every year from June 1993 on to the end of the decade we will cut protection, tariffs, by an equal amount. So if you have still got 35% protection and you have got 7 years to go then it is about 5% a year in each year

right through to the end of the decade.

But to make sure you don't lose out in terms of the cost base, all the benefits that I described before are concentrated in the first 3 years. In fact, some of them come in the first year like interest rates and a more competitive exchange rate,

labour market changes, some of the transport changes, all in one year, tax changes in the second year. But by the end of the third year the great bulk of the reform I described to you and the improvements in the cost base will have been

delivered. And you will still have 4 or 5 years left of the decade to run with protection at 20 to 25% and phasing down.

We have deliberately and carefully front end loaded the cost benefits to you while phasing down protection over a longer period time, giving you time to adjust.

Now I don't say that that won't bring about change in the industry. It is not for me as a Government to say how many car companies we ought to have, or how many dealers we ought to have or how many models we ought to have or any of that. I

like to leave everything like that to you and your commercial judgement. But I want to give you the best chance to make those decisions and to build that industry. And when I do that in the context of the GST and the abolition of sales tax and lower prices for cars and so on, cheaper petrol - 19 to 20

cents per litre cheaper - then you can have a bigger industry and a more dynamic industry. It will be a more competitive industry, it may not have the structure it has today, but it will be full of tremendous opportunities to make a quid.

That's why I am such a strong believer in not only a dynamic Australia but a dynamic car industry as well. It can be done, we aren't stupid, we aren't trying to just cut tariffs like the other lot have done in the last few years and leave you on your own to sink. We recognise the difficulty of making long

term investment decisions and the long lead time that's involved for major automobile companies in particular to make some of those decisions.

But I am also conscious of the fact that over the years some of those companies have played Government's on a break. They figure we'll play it off against each other, I've just had it,

come in and see us, go across and see the Government, come back and see us and see if they can get a better deal. Well it is easy. I have told them the way it is going to be under

us, clear cut, I won't be there. They're the rules, you make your decisions.

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And I would be very surprised when you analyse a car company, one by one, and then look at the genuine cost base

improvements that they can't be significantly better off.

I spoke to Jack Nassar very early on at Ford, as one example, he told me that 70% of his cost disadvantages were associated with interest rates, cost to capital, the exchange rate and labour costs. Those 3 things can be dealt with in the first

couple of years.

You can be internationally competitive in Australia. You can have a dynamic car industry but we have got to make a lot of change. I went to Nissan, standing on the production line, saw them pressing car doors. And I said, 'where does that

steel come from?'

'Well the steel comes from Japan', I was told.

'You mean we don't buy our Australian steel for the car industry, we import it from Japan'?

'That's right'.

And it is made in a steel mill that was supplied with our technology and uses our iron ore and our coal. We ship it all up to Japan, make the steel and ship it back. And so I asked the next question - 'Where is the car going?'

'Oh, it's going back to Japan.'

I find it very difficult to find why that should be. We have got the iron ore, we have got the coal, we have got the know­ how and we have got the capacity, what is wrong with us? And we have got a cost disadvantage in transport which seems to

get built in there all the time going up and down to Japan which doesn't make any sense. And as I go around Australia I see dozens of examples that I can't understand that all come back to cost.

I went to an onion producer in Tasmania, sells them into the European market, millions and millions of bags of onions a year. He puts them in string bags which were made in Holland and shipped out here. We can't even make a string bag? Isn't there a big enough market for string bags in Australia? And

so you can go on.

And you see some crazy practices. They import salt on the East Coast of Australia because it is more expensive to ship it around the coast from South Australia than it is to bring it across from Mexico.

I am told it is cheaper to ship a car via Yokahama to Auckland up and down than it is across the Tasman.

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We have got a screwed up industrial structure that has come from those sort of massive cost disadvantages and distortions that shouldn't exist.

And I go back to where I started, and I'll finish on this. The embarrassment as an Australian to see the lost

opportunities in this country, phenomenal opportunities. We are right on the edge of the Asia-Pacific Region, it'll be the fastest growing region of the world. People come in and say, 'Dr Hews on you have got to be careful we have only got 17

million people here'. You have got 180 million people in Indonesia and you can almost swim there from Darwin.

We think small, we will stay small! If we think

uncompetitive, we will stay uncompetitive!

If you want to have the competitive edge and the winning way we have got to change a whole generation of bad policies and bad attitudes and bad values. And I look forward to the

opportunity of doing precisely that in Government. I don't want to falsely raise anybody's expectations, nothing is going to be easy, but have an unlimited faith in the capacity and ingenuity of Australians, absolutely unlimited. I know we can

do it! We just have to give ourselves the opportunity to try!

Thank you!

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