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Transcript of Mr. Hawke's press conference - March 8, 1983 - Radio 2CN

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Hr. Hawke: I thought it: appropriate and 1 hope you will recognise / .i the fact that it seemed to me on an issue of such importance as this I . that it was appropriate that I should return here and give, you the T opportunity of discussion and question on this matter but before I say anything and I want to apologise for a mistake in transmission which . -occurred on page 2 of the statement. The statement should read in the

second sentence it should read in the 2 weeks prior to the election, the word campaign should be out, so that it reads in the 2 weeks prior to the election when those statements were being made notifications of capital outflow from Australia exceeded $2.5 billion. I apologise for

that in the rush of getting it through last night.

You will have by now had the opportunity of reading and digesting the statement and I want to say that in this matter we have not rushed to decision. We though it appropriate to allow a testing of the market in the first day yesterday but it was our judgement that in the circum­

stances that I have outlined in the statement that the interests of this country7 demanded decisive and discreet action in regard to this matter. It is of course important as you will understand from the reading o f this document that it be clearly7 understood the dimensions of the mess

that has been inherited by my government. The question of the necessity to devalue is as you will see but one part of this problem. Let me make the point quite clearly7 at the outset that the true alternative leaders of the opposition in this parliament have as proved by this

document, exhibited themselves as totally irresponsible in terms of putting the interests of this country ahead of their own personal and political interests. In respect of the issue of the devaluation you have the situation where Mr. Peacock went to the extreme of irresponsibility by suggesting that there would be a devaluation , of 15%. The other

contender, Mr. Howard in this area refused as it was headed in the ■ Financial Review of March 1, refused to withdraw crisis prediction. He played his part in the set of circumstances which accelerated the outflow of capital from this country as I said to the order of $2.5 billion, in

excess of $2.5 billion. As I have said that has imposed enormous p ressur on the short term money market and on financial institutions and in that way has generated considerable upward pressure on short term interest rates and to some .... medium term rates. This is impossible to exaggera

in terms of the irresponsibility of the action of the leading members of the previous government. There has been to my recollection no trace of any senior politician in positions of power in the past history7 of this country who have acted with such total irresponsibility and we have had no alternative but to bring to an end, to protect the stability of our

currency, the decisive action that we have had to take. It is also clear as set out in the document that the abandonment of any semblence of responsible economic management goes far beyond this question of the currency. You know that during the campaign it.was deliberately7 put by .

the Prime Minister, the last PM, and by the Treasurer Mr. Howard who with Mr. Peacock seems to be the alternatives for the leader of the Opposition of this country, put out that the budget deficit in-.respect of 83/84 in respect of their policies continuing would be of the order of $6 bi11ιο­

ί t will come as no surprise to people here today that I was flagging my considerable doubt about the accuracy of the statements that were being used by the PM and other, not merely in respect of 82/83 which of course is virtually over but most important in respect of 83/83. That sceptisism which I had has now been confirmed by the fact that the Treasury has

supplied to me and had supplied the figures that were clearly available to the government at least in the last stages of campaign that the

c.ji. iinrtt'os for 83/8m would not be the $6 billion that, they were talking about In the campaign but a figure of $9.6 billion. Again I suggest it is impossible to overstate the total irresponsibility of politicians in power who would for the purposes of electoral advantage so mislead the Australian people. . It is important that, you understand the · ·

implications of this position, because I want to make it quite clear that a deficit of the order of $10 billion is simply not on and we will as I set out in the document, be undertaking a close examination of what is involved in those estimates and taking whatever action is necessary to leave this country in a position where the policies of the

government are - a. known and are openly put to the people of Australia so that there is no possibility and misunderstanding and also that the magnitudes of our fiscal operations will be such as to be consistent with the future welfare of this country and I want to make it clear

that we believe that there are considerable plusses as I have set out in the paper to the decision to devalue and as I put it we believe that the decision on the best advice will restore Australia's international

competitiveness as measured by unit wage cost indexes to at least the level prevailing in 1979/80 and I want to make it clear that we will be pursuing our other economic objectives in the context of ensuring a ' fall in the rate of inflation. We believe that the positive expectations which will be generated by the decisive action that we have taken and

by the other steps we will take in office will change the expectations of the business community so that there will be an expansion in the areas of economic activity independent of what sort of stimulation may be necessary by our government and I finally want to say that I believe that

the trade union movement will understand the necessity which faced my government in terms of the decisions that have had to be taken and I believe that both before 'anti in the context of the national economic summit conference that the trade unions and the business community as a whole will understand the necessity for the decision that we took and

will also be prepared to take the accommodating steps which will be necessary to achieve the greatest advantage from the decision which we have had to take.

Q : I realise this is very early days where in your ...... does this

leave the possibility of taxation cuts ......?

Mr. Hawke: I repeat the statement that I made at the press club when asked by Dr. Summers that we and of course the statement that I made- then has now revealed I think for the perceptive and accurate statement that it must be seen to be that we would have to look at our position ’ in terms of what the accurate figures were revealed to us. It is just unbelievable that what the Australian people and we as the alternative

government have been faced with is the proposition of being told that the deficit on existing policies in 83/84 would be $6 billion when in fact they knew it was $9.6 billion. No responsible incoming government can say there is another $3.. 6 billion that'has been thrown at us, that

does not make any difference, of course it makes a difference and I repeat what I said at the National. Press Club lunch that we will ourselves and in conjunction with the sectors of the Australian community look in the national economic summit conference as to what adjustments might be

necessary to ensure that the stimulatory actions that we need to take are consistent with.the obligations imposed on us by considerations of economic responsibility and I can't, and it would be improper for me to say to you now that it means tax cuts are out but obviously all of our program is going to have tv be looked at in light of the facts that we now know and which were known to the government during the election

campaign but which were deliberateLy withheld from the. Australian community.

Q : During this r r avis it: ion period, having taken a decision such as this I wonder if: you could just tell us from what areas of the bureaucracy you took advice, in particular did you seek advice from the Reserve Bank, Treasury or Prime Minister's department? f

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Mr. Hawke: There was input from each of those areas and we also thought

about it ourselves, we are not bereft of economic capacity. '

Q: Did Treasury actually recommend 10% devaluation and was based also on outside advice from people such as Barry Hughes?

Mr. Hawke; No, there was very close to a consensus of views about this.

I am not going to ... one has got to protect to some extent the nature of advice received but 1 can say accurately that there was I think a fairly large degree of consensus about the order of devaluation that would be appropriate. Let me just make it clear in terms of the economic

exposition of this. There are two alternatives that could have been faced up to. There was one that we have taken that you make an immediate discreet and decisive devaluation. The alternative was that you could continue the calling .... approach which just went down and down and my £ L r m decision, personally and without question in terms of any area of ydvice was that would be counter productive it would be fuelling

speculation and xvould not achieve the protection of the interests of ■ this country.

Q: Does that in fact: mean the Treasury did recommend the 10% devaluation

Mr. Hawke: I put it to you in terms that the action that I have taken in this matter is not inconsistent xvith advice from that quarter and others that I accept with Paul Keating that finally we accept the responsibility for the decision that was taken. I repeat it was not

inconsistent w ith the advice received from a number of quarters.

Q: You mention in the paper that you are examing some of the previous

government's spending programs is there any indication at this stage .... there? . "

Mr. Hawke: No I will be requiring Paul Keating in an overviexv sense and other Ministers in particular to examine all those programs because «tfviously we cannot be expected to, and obviously are not expected to ® v e a blank cheque to all those programs which are said to be going to

reduce this deficit and not only will xve do that but it will be an o v e r ­

whelming imperative I would think from the Australian electorate that given the way in which they have been historically misled, there is never in the history of this country been such political duplicity practiced by a government as was practiced during this campaign. The electorate xvill be demanding of us that xve undertake this careful analysis, and we will do i t . ^ _ __ .

Q: Are you going to reintroduce the variable deposit requirement and if so at what rate, and secondly would you anticipate that there xvill be pressure on wages from this decision and how xvill you handld that?

Mr. Hawke: In respect of the VDR question I have not made any decision on that, that is one of the questions in respect of which I may ask for more specific information, I have not made any decision in that area. In respect of the second part of the question I just refer you to what -

I said in the. statement that 1 believe that in respect of the trade unions and I am fortified by having heard Mr. Kelty on AM this morning where he

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expressed Its urulers tanking of the reasons why the government has found it necessary to do this and he would expect there would be discussions in the eon text of our prices and incomes policy approach in the economic summit approach. I am very fortified by the responsibility displayed by the spokesman for the trade union movement as against the statements on the same program by Hr. Howard. Its indicated that he and his party

have learned nothing from the events of the last few weeks because he is still after the gross deception in which he and his other colleagues have been involved still playing politics on this issue.

0: Is the possibility of a Juno quarter credit squeeze high on your mind when you made this decision?

Hr. Hawke: If we had not taken action we would have been in the possibility of a momumental credit squeeze because you had the outflow of money, the build up of the tax demands on business and we would have been in a situation of horrific credit squeeze situation. There was

just no way that the interest of this country could have expected any · other decision than the one we have taken. '

In light of these new deficit figures for the next financial year would be your aim for a deficit now to get that figure? .

Hr. Hawke: I know that you are not asking me to be precise to the point but we were operating in the business where as I said throughout the campaign I have to accept the honesty and the integrity of government where they were talking of the order of $6 billion. We were talking about

the possibility of $1.5 billion on top of that which would have put you in the range as. a proportion of GDP of 4%% to 5% which would have been quite consistent with the levels of deficit as a proportion of GDP in the range of OECD countries. For instance, let me remind you that as I recall the figures that for the UK its about 5%, for Japan its 5.5%, '

and for USA about 6% that their deficits are running as a proportion of · GDP. We would have been well within that. I think that would provide you an answer but we would be thinking in the order of the figures which are consistent with 7.5 and perhaps a little bit upwards but I want to make it quite clear because its the integrity of this country demands

that it be understood that we can't be talking in terms of the $10 billion that would be involved in continuation of this government's position just a marginal addition to it. ·

Q: Mr. Keating what affect do you expect today' s'devaluation to have on inflation in Australia this year?

Mr. Keating: I think because of the depressed state of the economy I think we will have a fairly muted affect. 1 expect that it will have some affect over time.

Q: Can you quantify that affect?

Mr. Keating: No I can't but the advice we have received is,the fact that the economy is so depressed that it will be a muted affect over time. .

Q: Do you think you now be able to hold housing interest rates at their current level?

Mr. Keating: I think the affect of the devaluation will be to put downward pressure on interest rates and the levels I think which have

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been sustained in the early part, of the year 1 think can be sustained in this climate for the balance of the foreseeable future.

Q: You have said that the affects would be muted by ..... the

inflationary affects of devaluation would be muted by the r e c e s s i o n ,· that implies a further squeeze on company reserves who are already squeezed very tightly by Che recession itself. Are you worried that this might exacerbate .... . ‘

Mr. Hawke: Let's get. the economics clear there seems to be a looseness in your a p pro ach . We expect and its not inconsistent with the information that we received that there can be through 33/84 an expansion in activity now chat the economic facts are of course ai/Know in the process of recovery when it takes p l a c e , the benficiary in terms of sectoral shares

is the profit sector and so it should be let me make no doubt about that I have made it clear that the profit level is at a historically low and I believe unsustainable lev el.

Q : That $9.6 billion which doesn't take into account your 10% devaluation does it, so you will lose customs excise ......

Mr. Hawke; It's not quite as simple as that as you k n o w . There are plusses and minusses in terms of the impact on that $9.6 billion to the extent that you generate more activity and import competing industries and so on there is a whole complex of considerations, the element that you refer to would operate in the way you put.

Q: Would you releasing a breakdown of that $9.6 billion on the receipt and expenditure side? :

Mr. H a w k e : I am not prepared to at this stage I will take it into

consideration w hen I have consultations to see whether that can be d o n e . I am not prepared to give an undertaking at this stage.

Q: You spoke of the expectations of the business community as mentioned against one of these considerations, obviously your election promises and the one election promise which seems to have aroused a certain amount of sceptism is your costing of m ed i c a r e . Are you prepared to issue a Treasury costing of medicare?

Mr. Hawke: I think there would be some reluctance on the part of .

Treasury to push me into doing that because it defies my imagination how the fundamental mistake could have been made when it was known that our program would not be coming into operation until the first of J a n u a r y , but people like that would nevertheless apply the cost for the whole

of 83 /8 4, I would have thought its a pretty fundamental sort of m i s t a k e . I will look at t h a t . *

Q : Given that Mr. Peacock has used the figure of 15% do you think there

is a danger that investors will continue to take money out of the country until they are sure there won't be a further ..... .

Mr. Hawke: No, as I explained before the certain danger in that direction would be if I had been indecisive in this and said we will continue the calling .... approach and say it a bit more t o d a y , a bit more today, that would have been a certain guarantee of continuation of outflow the only

way in which we can achieve the protection of the Australian is in the xvay we have decided. It would have been certain that if we had acted in any other way the outflow would have continued, I believe that pitching it at this level that we can see an end to this outflow and I would

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hope and believe a turn in the ocher direction.

Q: Can you tell us exactly when you made the decision and which, if any of your colleagues you talked to about the decision apart from . Hr. Keating? . /

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Mr. Hawke·. The decision was rested with my s e l f and Mr. K e a t i n g , 1 \ finally made the decision in the latter part of y e s t e r d a y . '