Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Election '96: Paul Keating talks about politics in Queensland, the Australian economy, tax avoidance and Telstra

KERRY O'BRIEN: Now, the Federal campaign, which has passed the half-way point, with the John Howard Coalition apparently still comfortably in front. I interviewed John Howard in the first week of the campaign and I am joined now, for the first time, by the Prime Minister.

Paul Keating, you and Wayne Goss, if we start with Queensland, have hardly forged a close relationship over the years between Federal and Queensland Labor. Do you accept any of the blame for what's gone wrong in Queensland?

PAUL KEATING: I think Queenslanders had an opportunity to think about this, they knew what the by-election meant, they made a fairly firm decision and I think Wayne has reflected well on himself accepting that judgment, acting expeditiously, with integrity, and I think - can I say from my part - with admiration. I think that's something we can admire, the fact that somebody has accepted the electorate's notion and made a decision. Whether he wanted to resign the leadership, of course, is his own matter. But I don't see it replete .. I didn't see the State election replete with Federal issues and frankly I don't think the Queensland Labor Party did either.

KERRY O'BRIEN: Except there was a curious moment in the Mundingburra by-election campaign where Labor had started behind, was seen to have clawed back, that party officials had come to believe that they were going to win that seat, and then you declared the Federal election, and it was all downhill from there.

Now, I would suggest, potentially, a message for you in that, and certainly there seemed to be some anger and frustration in the Queensland branch, that you couldn't hold off in declaring the Federal election.

PAUL KEATING: I think the answer to that is in the margin that the Liberal Party won it with, in the end, such a margin as to believe there wasn't a vote or so in it. And I don't think there is any doubt that electors in Mundingburra knew that were they to vote against the Government, that the matter would be thrown in the hands of Liz Cunningham who they believed would vote for the Coalition.

KERRY O'BRIEN: So now you've only got one Labor Premier left and Bob Carr doesn't seem to be doing much to help you in New South Wales either, does he?

PAUL KEATING: Can I say, I think Wayne Goss deserved much better. I think he was an exceptionally good Premier, a very straight and honest government. I mean, he's accepted the judgment, as we all have, but I think one can make that observation.

KERRY O'BRIEN: Okay. New South Wales - the last Labor holdout amongst the States and yet even there it would seem that Bob Carr has, in the past month or so, turned voters against Labor and that the suggestion, again, coming from inside the party is that that is going to hurt you.

PAUL KEATING: This is .. you're alluding to the issue over the Governor. Well, I think the answer to that is, Kerry, that today we've sworn in a new Governor-General who will be a full-time occupant of that position and the Federal Labor Party have done nothing but observe the traditional protocols.

KERRY O'BRIEN: Regardless of what you say about it, the fact is, it would seem, that you and Bob Carr are both on the nose in New South Wales.

PAUL KEATING: I don't think we're on the nose in New South Wales, particularly, I don't. And I am not sure to what extent this is true of the State Government either but, again, governments have problems all the time, all governments.

KERRY O'BRIEN: Yours has certainly had a fistful.

PAUL KEATING: And right throughout the Western world, North America, everywhere else, but the fact of the matter is - look at the Australian economy, still growing around 3 to 4 per cent, still 700,000 jobs, still 3 per cent inflation.

KERRY O'BRIEN: All right. Let's actually talk about the Australian economy then. Today should have been a big day for you. John Howard has finally given you something to hit with his spending cuts, regardless of the rights or wrongs, the arguments about them, you've got a target to do what you can with, something to aim at, but your own credibility is still taking damage. You've been ducking and weaving for a week on the claims that you're headed for an underlying budget deficit next year. People want to know what you're afraid of in not moving to shed any new light on those figures.

PAUL KEATING: Kerry, there is only one issue here and that is whether the spending of the parties adds to the budget task or makes it easier - that's the question. In other words: What have we done in the election campaign - any of us - that makes the budget task more difficult or more easy? What the Government has done has funded its commitments twice over. What we found today with the Liberal Party is that Mr Howard's commitments are unfunded. It's another 1987 Box Hill operation. Mr Beazley has discovered, by going through the line items, a $3 billion deficiency.

KERRY O'BRIEN: And yet, for at least a third of Kim Beazley's press conference today, he was being pressed by questioners from the press corps saying, 'Why don't you come clean on the budget deficit that everybody believes is around the corner?'

PAUL KEATING: But it's not a matter of coming clean, Kerry. The Liberal Party....

KERRY O'BRIEN: That's the perception.

PAUL KEATING: ...for the first time in any Federal election are asking the incumbent government to publish a starting-point budget number. It's never happened before because it doesn't happen easily and without a lot of time.

KERRY O'BRIEN: Okay, but here's the argument for it. Here's the argument for it.

PAUL KEATING: Now, hang on, you asked the question, let me answer you. They've got this red herring out there. The real issue is the fiscal spending and whether it is covered. Whether they are lucky enough, or you are gullible enough, to jump on their piece of bait and not on the real issues....

KERRY O'BRIEN: This is not just coming from the Liberal Party, it is coming from a very large swag of private sector economics, including some highly credible ones. And the fact is that when you made your forward estimates for the budget in May of last year, you then came out at the end of last year, with a half-year budget review.

PAUL KEATING: Exactly.

KERRY O'BRIEN: You have acknowledged in that budget review that growth has slowed, that that has had an impact already on your budget outlays. The Reserve Bank has estimated, towards the end of last year, a $2 billion layer on top of your budget deficit - $2 billion on top of that. There seems to be very legitimate reasons for people to be asking the question: What's around the corner next year?

PAUL KEATING: Right. Well, let me give you the very legitimate answer. The Reserve Bank has declined to reduce interest rates, have they not? They have just had a board meeting....

KERRY O'BRIEN: Yes.

PAUL KEATING: ...the US has just dropped their rates - why haven't they? Because they think the economy is going to be strong next year from 1 July. In other words, they think we're facing a whole....

KERRY O'BRIEN: The question is: How strong?

PAUL KEATING: Okay....

KERRY O'BRIEN: Strong enough for you to recover the position that you forecasted in May of last year?

PAUL KEATING: Kerry, it will be .. it's around 3.25 per cent now. So if it's going to be strong, it's four or four plus. If it's four or four plus you know that the slightest movement in growth, employment and average weekly earnings means differences by billions in the budget balance. So, therefore, we believe when the budget's put to bed for August in this year, for next financial year, it will be reflecting the general inclination of surpluses.

KERRY O'BRIEN: Okay. You have made much of the fact that in 1983, the day you took office as Treasurer, you were handed a minute by John Stone, the head of Treasury at that time, which said that there was a deficit blowout....

PAUL KEATING: Massive.

KERRY O'BRIEN: and you made much of that.

PAUL KEATING: Yes, but....

KERRY O'BRIEN: But why could you not lift the phone .. why, if it was possible in 1983 for those figures to be made available then, why isn't it possible for similar updates to be made available now?

PAUL KEATING: Well, for the first thing, in 1983 we were not asking the then government, Treasurer Howard, to give us the starting-point deficit. As it turned out Stone gave it to us after the election, but we were not asking for it and, as Mr Howard himself said quite eloquently, the numbers are almost worthless at this point, six months from a budget round. Now, as it turned out....

KERRY O'BRIEN: In one sense, six months from a budget round, but 10 months since you came up with those estimates - 10 months. Are you telling the people of Australia that you couldn't lift the phone to the head of Treasury or the head of Reserve and that they don't have, at their fingertips now, unofficial estimates for next financial year?

PAUL KEATING: A forecasting round, a joint economic group forecasting round takes at least six or seven weeks. If I had said on the day I called the election, 'Press the button on a new round to give us some rough starting-point numbers', we'd be flat out getting it before the Parliament.

KERRY O'BRIEN: They are largely based on growth, on inflation, on employment and on wages, are they not?

PAUL KEATING: Yes, and for what quarters?

KERRY O'BRIEN: What I am raising with you is that we are talking about a 10-month period, going back to May of last year when your estimates were made. So if you were sitting down .. if this election wasn't taking place, you'd be sitting down with your officials now planning for a May budget in which these figures surely would be available, otherwise how could you plan your budget?

PAUL KEATING: But we're not having a May budget and we've asked the Treasury and the Finance Department, we've told them last October or November, we would not be having a May budget. We are having an August budget. And in August we set the budget perimeters after we get the December, March and June quarter national accounts, in other words, when we've got the base of growth and activity of the previous year. We won't have that for six months.

KERRY O'BRIEN: The thing I find puzzling is that this issue is hurting you, is diverting you....

PAUL KEATING: Kerry, look....

KERRY O'BRIEN: Kim Beazley is....

PAUL KEATING: Kerry, look, no hang on....

KERRY O'BRIEN: Just let me finish this question.

PAUL KEATING: No, why don't you have the interview by yourself? You could talk the whole program through.

KERRY O'BRIEN: But I am not. I'll just finish this question.

PAUL KEATING: Maybe I can just sit here and you could just carry on....

KERRY O'BRIEN: Well, could you solve this puzzle for me? This issue does appear to be hurting you, it appears to be diverting you. As we saw in Kim Beazley's press conference today, you're asking us to believe that Paul Keating, confronted with this dilemma, can't fix it; unless you've got something to hide.

PAUL KEATING: Kerry, the Government's got nothing to hide. There's only one issue and that's spending....

KERRY O'BRIEN: But it's not the only issue.

PAUL KEATING: ...whether it's paid for. But what is the major issue in an Australian national election? Whether the policies of the parties are credible and can be paid for; whether they add to the budget task or subtract from it.

We are, as I said the other day, I think the only government in Federal history to actually improve the budget balance substantially in the course of the election.

What we find today is that Mr Howard can't pay for his election promises, can't pay for them. He's got a $3 billion deficiency - it's Box Hill all over again. I mean, he always has the bribes, I mean, that's how he thinks, and he can't pay for them.

KERRY O'BRIEN: You're going after his credibility; your credibility is very much a central issue in this campaign too.

PAUL KEATING: No, no, but it's the central issue because people like you have bought the Liberal Party line, that is, that the issue is the starting-point deficit. It was never .. or the surplus, it was never the starting-point issue.

KERRY O'BRIEN: I'll say again, before I saw anyone from the Liberal Party jump on this issue, it came from private sector economists.

PAUL KEATING: But who cares, Kerry? There's dozens of ex-Treasury economists out there. I mean, there's only one national forecasting capacity and that's with the Treasury, the Department of Finance, the Statistician, the Reserve Bank and the Department of Employment, Education and Training....

KERRY O'BRIEN: None of whom you would have us believe are capable right now of doing this.

PAUL KEATING: They are, but it would take six or seven weeks to get starting points together and for what budget? A budget in May? But we're having a budget in August. You understand?

KERRY O'BRIEN: Okay. Well, let's move on to another issue of credibility and revenue, and that's the issue of Telstra.

You've seized on the differences between your policy today on Telstra and John Howard's policy today on Telstra. You've sworn blind that Telstra is off limits for privatisation but you were the one who wanted to sell off OTC, were you not? In those days when you were trying to forge new policy.

PAUL KEATING: Exactly.

KERRY O'BRIEN: You were going to sell off the whole international arm of Telecom to....

PAUL KEATING: No, OTC was a separate body. OTC never belonged to Telecom.

KERRY O'BRIEN: Okay, but it was the Government's international communications arm, you were going to sell that off and use that as a private competitive force to compete with Telstra.

PAUL KEATING: With, I hope, Telecom New Zealand, become the Australasian competitor.

KERRY O'BRIEN: Which today's Telstra, if your plan had come off, today's Telstra would not have that whole arm and you're now saying Telstra is sacred, we can't sell Telstra, including what used to be OTC, which you were going to sell.

PAUL KEATING: Very poor argument, Kerry. Very poor argument.

KERRY O'BRIEN: Why?

PAUL KEATING: Because Telecom has $30 billion of revenues, it would have taken them a relatively short period of time to have built an international arm. The proposition I had was to keep Telecom in public ownership, to sell off OTC, to have Telecom New Zealand and OTC be the competitor, or one of the competitors, in an open competitive model and that we would then give an international licence to Telecom to build its own network. It's doing that now all over the world. I mean, it's just got a licence in Java. It didn't get that from OTC.

KERRY O'BRIEN: Okay.

PAUL KEATING: It's trying to get a licence in India, it didn't get that from OTC. In other words, we could have had, in that model, a competent Telecom with an international arm, and not had the English company and the American telecommunication company owning Optus.

KERRY O'BRIEN: But you told me in an interview on Lateline, that it didn't really matter whether Telecom, as it was then, was publicly or privately owned, it was the competitive framework that was important.

PAUL KEATING: And the competitive framework I've always had in mind is that we throw Australia open to competitors, which the Government has just reconfirmed for 1997. In 1997, ATT, British Telecom, NKK, they can all come if they wish.

KERRY O'BRIEN: Can you understand why people have a problem with your credibility? There was a point where you were going to sell OTC; but not now. There was a point where you said it didn't matter if Telstra went public or private, now you say it's public; it's sacred.

PAUL KEATING: No. Always understand what the model was, Kerry. That the Government never needed to dispose of Telecom to have competition in telecommunications. That was the model, that was what [...]. You see, before the Government's reforms there was no competitor and we had a debate in the Government about whether we would have a duopoly or an open market in framework and that was decided in favour of the duopoly but throwing the system open in 1997. That's what we are going to do.

But the real issue is this, we're living in the fastest growing part of the world where telephone connections are coming together at .. and telecommunications are being laid at such a pace, that we could grow Telecom as the major East-Asian carrier. There is, if you think about it, there is no major East-Asian carrier. Telecom can be the major East-Asian carrier, but to break it up and let British Telecom have a lump of it or someone else, after a century of nurturing the thing, seems to me to be absolutely foolish and counterproductive.

KERRY O'BRIEN: But what about IBM and Lend Lease having a part of its information technology base? Are you aware that those negotiations have been going on?

PAUL KEATING: Again, its got side businesses. It's got a side business in the Yellow Pages. That's not the core business.

KERRY O'BRIEN: So you could sell off the Yellow Pages?

PAUL KEATING: No. It wants to keep them because it thinks the digitalised network suits the digitalisation of the Yellow Pages.

KERRY O'BRIEN: But is it okay....

PAUL KEATING: No, no....

KERRY O'BRIEN: ...is it okay to sell....

PAUL KEATING: But the Yellow Pages....

KERRY O'BRIEN: Is it okay to sell off, by the back door as people are claiming, the information technology component of Telstra to IBM and Lend Lease?

PAUL KEATING: Let me just make the point of the Yellow Pages. They are already in partnership with an Australian company, and Yellow Pages have been for years. I don't know whether you know that? Have been for years.

KERRY O'BRIEN: Okay. But come to the other question. Are you comfortable about the information technology, or much of the information technology base going into another company with IBM and Lend Lease, because, as I understand it, negotiations have been temporarily put on hold while the election takes place?

PAUL KEATING: Okay. If that's in Telecom's interest, Telstra's interest, I'd be as happy as that, as I was with them doing the Foxtel arrangement.

KERRY O'BRIEN: Okay. Others see that as privatisation by stealth.

PAUL KEATING: But it isn't. I mean, basically how could Telecom produce a movie channel, a whole group of news, movie, information channels? I mean, Telecom's a phone business. It's not an entertainment company. It has to do arrangements. It has to come to arrangements. I mean, it's the same reason why MCA and British Telecom are buying into News Limited.

So you say to me, I've got a credibility problem. I say, you've got an information problem.

KERRY O'BRIEN: Okay. Coming back to credibility again, and your sudden decision on the weekend to stamp out what you and Ralph Willis regard as unacceptable tax avoidance by the rich. How do you explain, as John Howard and Peter Costello keep asking, that this has emerged so suddenly, when you had 13 years to deal with the problem that one assumes was there 10, 12 years ago?

PAUL KEATING: No, wasn't there at all.

KERRY O'BRIEN: Tax avoidance with family trusts?

PAUL KEATING: Before I introduced the capital gains tax in 1985, Kerry, every tax avoidance scheme ended up in the capital gain. Didn't matter how tricky the arrangements, in the end, what dropped out of the bottom was a capital profit. Now, I moved against that generically by putting in a capital gains tax.

KERRY O'BRIEN: But this surely is....

PAUL KEATING: So trusts were not a problem for the tax system up to 1985 or in....

KERRY O'BRIEN: And yet in 1985, according to Brian Toohey, the journalist....

PAUL KEATING: But Brian Toohey....

KERRY O'BRIEN: ...you had a minute as Treasurer from the Tax Office warning you that precisely this kind of thing was going on.

PAUL KEATING: I ran round the whole country in 1985 saying the tax system was in massive disarray and disrepair and that we had to have option 'C' to put a suture on it. So when I then....

KERRY O'BRIEN: Option 'C' was the consumption tax.

PAUL KEATING: No, but it also had in it the abolishment of entertainment as a deduction, it had the fringe benefits tax, it had the capital gains tax, and I did all these things.

I mean, it's not a matter of the Tax Office writing to me saying: We have a problem with the taxes. I was at that stage proselytising about the haemorrhaging of the tax system on every radio and television station in the country.

KERRY O'BRIEN: Okay.

PAUL KEATING: What happened is, we then repaired it. This problem has arisen at some time in the last few years.

KERRY O'BRIEN: All right. And if I don't wind us up now I am going to get my throat cut because we are out of time. But thanks very much, Prime Minister, for joining us.

PAUL KEATING: Thank you, Kerry.