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Budget 1997: Prime Minister defends budget strategy

PETER CAVE: Prime Minister, John Howard, and Opposition Leader, Kim Beazley, give us their assessment of Treasurer, Peter Costello's second budget. Already, it's been labelled cautious and politically inoffensive, with two measures: a tax rebate on savings and a $1billion Federation Fund for projects of national significance capturing the spotlight. A week ago, the Prime Minister told us that he anticipated that the budget would lift the fog, clearing the Government's gloom over the vexed issues of Wik, Pauline Hanson and nagging criticism that the pace of reform needs to be accelerated.

Later, we'll hear the first response of one of the big international credit rating agencies to the budget, but first, the Prime Minister, and to talk to him, chief political correspondent, Fran Kelly.

FRAN KELLY: Prime Minister, the $1 billion Federation Fund-what kind of projects do you have in mind for that?

JOHN HOWARD: Big projects that involve jobs, projects that will strengthen the national infrastructure of Australia. I don't intend to have the money frittered away on a hundred obelisks commemorating Federation. They're nice but somebody else can raise the money for them. This is a big projects fund, and I'll be talking to the State Premiers and the Chief Ministers to get their views. We are using some of the money for the national museum in Canberra. Now, that's an important national project and that will help the people of Canberra.

I'll be writing to all the Premiers in the next few days seeking their views. No doubt, they'll have plenty of views, and I understand that and I'll be happy to talk to them. At the end of the day, of course, I and my colleagues will decide the projects on which the money is spent.

FRAN KELLY: Well, the Democrats and others have immediately labelled it a flush fund.

JOHN HOWARD: Oh, gee, they are really clever, aren't they? They are saying all the time that we've got to do things to generate jobs. Nothing generates jobs more than activity, and this is about infrastructure activity and they're belly-aching about it. You can't please them, can you?

FRAN KELLY: It's described in one paper as the Government describing it as being available for one significant project in each State supported by smaller projects in regional areas. I mean, that does ring whiteboard bells, doesn't it?

JOHN HOWARD: Well, I'll tell you what, it won't be that. It will primarily be about big projects. Big projects involve small amounts of work in different areas, and that's what that statement had in mind. But this should be seen very much as providing opportunities for job generation in the regions of Australia. Not everything will be in the regions, but there'll certainly be a lot in the regions and it is about job generation. It is about major projects that will be valuable for decades into the future, and it's appropriate that it be called a Federation Fund and it's appropriate that it reach its peak when we celebrate the centenary of Federation.

FRAN KELLY: If it's about job creation, why not get it going now? Why wait a year or so before projects are even [inaudible]?

JOHN HOWARD: Well, there are other measures in the budget that are helping job generation. It's a question of ....

FRAN KELLY: What are those measures?

JOHN HOWARD: Well, look, the very fact that we have turned around a $10.8 billion deficit and by year three of our first term-at the end of our first term we will have created a surplus of $1.6billion. Now, that is a magnificent achievement by any measure. We inherited a $10.5 billion deficit, all the work of our predecessors, and we're going to have a surplus of $1.6 billion.

This year, this coming financial year, we will repay more than $5billion of Mr Keating's debt. Five billion dollars will be repaid. We will not be a net borrower. All of that exerts further downward pressure on the conditions that affect interest rates. Now, I make no prediction about interest rates; I make no calls about what should happen; that is a matter for the monetary authorities.

But what the Government has done is deliver on its side of the monetary equation. The Government has taken pressure off interest rates by cutting the deficit. The Government has repaid massive amounts of the debts of the Australian people accumulated by the previous government. Nothing, can I say to you, Fran, is more calculated to lay the foundation of a very sound future.

And don't let our opponents come along and say that it would have happened if they'd been in office. They opposed the sale of Telstra which is one of the methods whereby we have brought about this massive debt reduction. So this is very much a budget that lays the foundation for a sound 21st century for Australia because what it has done is to tackle this cycle of deficit and debt.

I'm able to say to you this morning that in 1995, our debt to GDP ratio was just under 20 per cent. By the year 2000, it will be 10per cent. Amongst the OECD countries in 1996, we have a debt level now which is lower than the average of the OECD. Now, that is a huge turnaround.

FRAN KELLY: With respect, though, Prime Minister, the Coalition's debt reduction strategy has worked on a massive scale, but much of that was in last year's budget. This budget makes only a small contribution to cuts-$330 million in this year.

JOHN HOWARD: No, that is not true. But look, the important thing is whether you do the job. Now, the first job of a new government is to fix the nation's finances, and they were in a mess when we came into power, $10.5 billion of deficit, and by the end of our first term-and people sneered at us when we said we'd do it. The Opposition has variously sneered at us or said it was unnecessary. I don't know what they're going to say now. It will be very interesting. The fact is we have turned it around and we have done it in a fair way; we have done it at the same time that we have kept our promises. We gave a $1 billion family tax package; we're giving $600 million of tax relief for people who take out private health insurance.

FRAN KELLY: But that was last year's budget.

JOHN HOWARD: Why do you say last year? Look, I'm sorry, it comes into operation on 1 July. I mean, the important thing is whether you get to the place on the hill. It is whether you get to your goal. It's not whether you do two-thirds of it in the first year and a third in the second year. With great respect, that is a silly argument.

The important thing is whether you do the job, whether you get there, and the combination of our budgets in our first term will be that we have turned the finances of this country around from a $10.5billion deficit to a $1.6 billion surplus. We've kept our promises. We have delivered our family tax initiative. We're delivering capital gains tax relief to small business. We've seen interest rates fall by 1.5 per cent. We've seen inflation kept at a very low level and we are building for the future with a Federation Fund that is going to renew the important infrastructure of this country. Now, that is building for the future on a massive scale.

FRAN KELLY: Are you disappointed, then, that media commentators and others have welcomed or described this budget today as cautious, that the financial markets haven't welcomed it? They say that it's dampened expectations of a ratings upgrade, that business hasn't exactly sort of embraced it.

JOHN HOWARD: Well, I don't know who you're reading.

FRAN KELLY: Well, I've read all the papers and I've read a wad of press releases.

JOHN HOWARD: Well, you couldn't have read Terry McCrann, for example.

FRAN KELLY: No, but I did read ....

JOHN HOWARD: Oh, well, I think you should. I mean, he's got more readers ....

FRAN KELLY: ... well, I did read Terry McCrann, as a matter of fact, but I read a lot of others.

JOHN HOWARD: He's got more readers than most of the other financial writers.

FRAN KELLY: You've got to concede there's a lot of front-page articles today describing it as cautious.

JOHN HOWARD: No, no. Well, hang on, Fran. Come on, you made the point. So let me say Peter Costello has decisively buried the Keating legacy in more ways than one with a very good budget. It consolidates our nation's finances around a smaller government dynamic; importantly, not a slash and burn and bash the poor smaller government, but one that seeks to make government work better, delivering the same services more efficiently or cheaply. Now, I think that is a very accurate description of this budget, and you will find, across the board, there is a recognition of a job well done.

Of course, some people will always argue that you should go further. There are always people who are-no matter how high you jump, they will put the high-jump bar up a little higher and say you've failed unless you jump that extra distance. Now, I know that; that's always happened. It's my job and the job of the Treasurer to set the balance, to make the judgment of what is the right trade-off between the economic demands of the country and our concern about the impact of economic measures on different sections of the community. And we have got that balance right.

We are giving massive incentives for people to save. First time in Federation, a government has given a genuine tax break for savings. It's not a mealy-mouthed restricted, limited, hamstrung break, it's right across the board: all forms of savings from all forms of investment, including, I might say, personal contributions to superannuation on which no prior tax break has been received by the contributor. Now, that is a very valuable incentive. We're not discriminating against one form of saving in favour of another. This is the first time anybody has done anything comprehensive about that. Now, I think that will be seen, particularly by self-funded retirees, as a very long overdue reform.

FRAN KELLY: Indeed. Obviously, it is a big boost for self-funded retirees; it's a big boost for people who are able to make big superannuation contributions.

JOHN HOWARD: And may I say, Fran, that self-funded retirees are the one section of the population who, if I can put this way, are the poor relations of lower interest rates. The rest of the community think lower interest rates are a great idea. People who are on fixed incomes, the retired section of the community, sometimes wonder, because it directly affects their income, and therefore some recognition of the particular position of self-funded retirees and of retired people generally was needed, because the Keating L A W plan completely ignored them. Keating's plan was to reward only the people who were in the work force, and that was particularly discriminatory against many women, and particularly discriminatory against retired people.

The Howard-Costello plan is a 15 per cent tax break right across the board, all forms of saving, all forms of investment, including superannuation contributions of the individual. In that sense, it's a more balanced, fair measure that doesn't discriminate against different sections of the Australian community.

FRAN KELLY: Prime Minister, we're going to run out of time, but I must come to jobs. Jobs was always going to be the big test for this budget. The Treasurer described the growth, predicted growth in this budget of 3.75 per cent as exceptional growth. Now, is it exceptional growth? It's not that much more than forecast last time, and in the last 12 months you didn't manage to shift unemployment at all. Why will this make a change?

JOHN HOWARD: Well, unemployment is predicted at the end of this financial year, the financial year starting on 1 July, is predicted to have fallen to around 8 per cent.

FRAN KELLY: But there were big predictions last time?

JOHN HOWARD: Well, hang on, hang on. Just remember that we inherited a level which had been deep-seated at around 8.5 per cent and had gone to 11 per cent when Mr Beazley was the Minister for Employment in the former government, so you know, let us just understand one fundamental thing. Our critics, the Opposition, had 13 years. They pushed unemployment to 11 per cent. They left us with 8.5 per cent. It was deeply embedded in the Australian economy, and it will take time to remove, and everybody who understands anything about the economy of this country knows that employment is the last indicator to come right when things get better.

Now, we have laid the foundations. We have freed the labour market. I'm very disappointed that the Labor Party is going to oppose our unfair dismissal provisions, and in doing so, they are actually destroying the job prospects of thousands of young Australians and they are maintaining an unreasonable burden on those thousands of small business men and women who are the main vehicles through which job generation will occur.

The Labor Party has no credibility to criticise us on unemployment while it continues to stop us getting rid of Laurie Brereton's stupid, job-destroying unfair dismissal law. No credibility at all, because even the Labor Premier of New South Wales, Bob Carr, admits that that particular measure has damaged the job prospects of thousands of young Australians and it's sheer hypocrisy of Labor to talk about unemployment when they won't even support that attempt by us to help small business employ young Australians.

FRAN KELLY: Well, Mr Howard, one final question. A week ago, you said that this budget would help lift the fog, the fog that is enveloping your back bench and others in some kind of criticism of your leadership. Is there enough or what is it here that will lift the fog in terms of jobs, instead of spending boosts for regional Australia, that will promise job security to counter the attraction of Pauline Hanson, persuade them to forget about Wik? Where is it?

JOHN HOWARD: That's an extraordinary interpretation of what I actually said, Fran. What I said that any stage of a government's life when you get preoccupied with budgets and other things, you tend to appear off the central message of concern to the electorate. I have no doubt at all that this budget will be seen as a budget that addresses the future. It's a budget that has got the fundamentals of the economy right after the $10.5 billion black hole that we inherited from the former Finance Minister, Mr Beazley, and the former government. We've now turned that into a surplus in year three, of $1.6 billion. I think people will applaud that. I think people will be attracted to the savings initiative because it's uncomplicated and generously across the board, and I think they will see the Federation Fund as a very valuable future investment in renewing the important infrastructure of Australia, particularly regional Australia. I think they'll give it a big tick.

FRAN KELLY: Prime Minister, thank you very much.

JOHN HOWARD: A pleasure, always.

PETER CAVE: John Howard, speaking to us in Canberra.