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Economy; Interest Rates; ALP – Interview with Tim Lester, 7.30 Report, ABC TV




Interview with Tim Lester

7.30 Report, ABC

Thursday, 2 September 2004


SUBJECTS: Economy; Interest Rates; ALP


Treasurer, which Australian political party deserves the mantle as the

better economic manager?


Well if you look at the record of the Coalition Government over the last

eight years, and you compare it to the record of the Labor Party over the

preceding thirteen years, I don’t think there is any question. The record

over the last eight and half years is clearly superior.


Are interest rates, in isolation, a valid measure of a Government’s economic

management skills?


Look, I think you have to take growth, inflation, jobs and interest rates

all into account. I think if you take all of those things into account you

will see that over the last eight and half years under a Coalition Government,

growth has been strong, inflation has been low, unemployment has fallen

to its lowest level in twenty-two years, and interest rates which average

12.75 per cent over the Labor Party’s term of office have averaged 7 per

cent under a Coalition Government.


We’ve in fact asked Econtech, the economic consultants to combine the very

figures you talk about, I think with the exception of growth, into what

they call the misery index – interest rates, inflation, unemployment. They’ve

added it up, and they have compared the Hawke/Keating years with your Government’s

years, and found as you suggest a resoundingly lower figure in the Howard

Government years, I think sixteen versus twenty-eight is an average. Why

has the Howard Government enjoyed that edge over those years? What has lead

to those lower figures?


I think the most important thing was the discipline that we showed on the

Budget. Let me give you one key indicator which I think has been very important.

During the Labor Party, budget deficits averaged 1.5 per cent of GDP. Under

our Government there have been budget surpluses at an average of 0.5 per

cent of GDP. That has been an enormous difference. From 1.5 per cent average

deficit to 0.5 per cent average surplus, that’s a 2 per cent turnaround

of GDP. GDP is about $800 billion. That is a very, very large sum.


The key is running surpluses.


The key is running a disciplined Budget.


And Labor now promises it will run surpluses. What more can we ask?


Well Labor promised that they were running a surplus in 1996, you will

recall, when they were last in Government. But when we got to the books,

it was actually $10 billion in deficit. The only thing I say about Labor

is don’t listen to what they say, look at what they do. If you look at what

they do, they averaged budget deficits. Not budget surpluses. They averaged

budget deficits. Look at our record, we’ve averaged budget surpluses.


The figures you suggest as a credible measure of Governments go to making

up what the economists call the misery index, the worst misery index performance

in the last twenty-five years was under Treasurer John Howard. If we judge

Labor on those numbers, shouldn’t we judge him as well?


Well I think you have got two very easy comparisons. You have got eight

and half years of the Howard-Costello team, and you’ve got thirteen years

of the Labor team.


Which neatly ducks the question of Treasurer John Howard.


But they’re comparable periods. In fact the only thing I’d say, and I think

this is very important to take into account, probably economic management

in the last eight and half years is much harder than it was during the thirteen

years of Hawke and Keating. There was no Asian economic crisis. There was

no SARS. There was no hundred year drought. There was no September 11th,

or war in Iraq. In fact there are some people who say oh well, you’ve had

the benefit of good times in the last eight and half years. Let me tell

you, in the last eight and half years we had greater economic challenges

than they ever had under Labor from 1983 to 1996, and the fact that Australia

came through it, is just a demonstration of the change in this country.


And in greater economic challenges than Treasurer John Howard faced under

the Fraser Government. If we are going to assess the Liberal-National Party

Coalition for its economic credentials, what’s wrong with getting figures

out of the Fraser Government years?


Well, what’s wrong if you want to go back to, was it twenty-five years

ago? I say there is no need. The relevant thing is what has happened in

the last eight and half years. But, let me put another comparison to you.

It is not only when you measure the economic management of the last eight

and half years against Labor’s record, but measure our management of this

economy against other countries in the last eight and half years. You want

to say well you have done better than Labor did, your predecessors. What

about comparing us to other countries during that eight and half years?

What about comparing us with the United States, or Japan, or Britain? When

you compare Australia by the international analysis, the economic management

of the last eight and half years has been one of the strongest in the world.

And Labor can’t actually name the countries that it believes have done better

than Australia in the last eight and half years. An interesting challenge

for Labor.


Mightn’t it be that the performance of the last eight and half years actually

rests to a large degree, not entirely, but to a large degree, on floating

the currency, on the financial deregulation, and the reforms of the Hawke

and Keating years, that you’ve enjoyed the benefits.


Well you left out one of the great achievements of the Hawke and Keating

years, the worst recession in sixty years. Now I hear this argument from

time to time from the Labor Party, if the economy is good we did it, but

if the economy is bad Costello did it. They argue different things according

to the day. But the one thing they always leave out of the Keating record,

is they always leave out the recession we had to have. They always leave

out 11 per cent unemployment. Let me tell you something, the Keating recession

of 1990 went close to destroying this country. We had 11 per cent unemployment,

our budget was smashed, our debt was increased by around about $80 billion

and it’s taken us nearly eight years to get back, and the one thing that

you’ll never hear the Labor Party talk about is the achievement of the Hawke-Keating

Government is that recession. Put that back in the equation please. Don’t

air brush Mr Keating and his recession out of the Hawke-Keating Labor legacy.


On interest rates, you acknowledge that interest rates are an important

measure. They are now heading up, two rises recently, and the economists

we speak with say more. Agreed?


What? It’s true that home mortgage interest rates have increased to around

about 7 per cent compared to 10.5 per cent when the Government was elected.

12.75 per cent average under Labor, and 17 per cent peak under Labor. If

I had said to you during the Hawke-Keating Government interest rates might

increase to 7 per cent, you would have said ‘I should be so lucky’. We never

saw interest rates with single digits, so, it’s true they have gone up to

7 per cent compared to 12.75 per cent average under Labor.


But isn’t the very reason interest rates are an issue at this election,

that under your economic management, household debt has shot to record levels

to make interest rates a lot more dangerous than they were back then?


Well if interest rates are low, people borrow more, of course they do.

And every time I hear the Labor Party say that they would like people to

borrow less, you have got to listen to the code. That is saying, put up

interest rates. That is what they are saying, put up interest rates. If

you bring interest rates down you can’t complain if people borrow more.

And if people have the opportunity to borrow a low interest rate whether

they spend it on cars, or whether they spend it in the economy, that’s actually

quite supportive of a strong economy.


Treasurer, today the BRW says – Treasurer Costello says chances of a slow

down increasing. Exactly what does Treasurer Costello say about the chances

of a slow down?


I say there are big risks in the international economy. There is the risk

of high oil prices. Interest rates are going to rise around the world lead

by the United States, and I say in a difficult international environment,

we need strong economic management. You won’t get that from Mr Latham.


Do you expect a slow down in Australia?


We forecast 3.5 per cent growth. That will be slightly less than the year

that has just finished. But I think with strong economic management we can

get through those challenges. Without it we will be in trouble.


And do you expect further interest rate rises in the new term?


Well, if Labor is elected, yes I would expect interest rates to go up.

Yes they would.


Under your stewardship?


Under our stewardship the interest rate regime will continue. We put these

arrangements in place remember. These are my arrangements which I put in

place in 1996, and the evidence is there for all to see.


Will rates rise under you?


Every day since 1996, since I put these arrangements in place I’m asked

about the future of interest rates which I am not allowed to speculate on

as the Federal Treasurer.


But you speculate on if there is a Labor Government?


Because if there is a Labor Government I know that their policy will drive

interest rates up. That is what the evidence is.


But you won’t speculate under a Howard-Costello …?


When I announced the current monetary arrangements which I put in place

in 1996, and I want to stop here and make the point, when I put the monetary

policy arrangements in place in 1996, the Labor Party opposed them and threatened

to sue me, by the way, sue me. And I said then that because we were giving

independence to the Reserve Bank I couldn’t comment on the future direction

of interest rates which I have studiously stuck to since 1996.


The economists we’ve spoken with, four of them I think, say that on the

big issues, the macroeconomic issues, Labor and the Coalition are singing

from the same song book.


The critical thing is not what Labor says. Talk is cheap when it comes

to Mr Latham. The critical thing is what is Labor’s record. Labor’s record

is high inflation, budget deficits, high interest rates. Our record is balanced

budgets, low inflation, low interest rates. Don’t listen to what they say,

look at what they do.


Finally, the economists we have spoken with, say unanimously, that really

because of the similarity in macroeconomic policy, it really doesn’t matter

who is in, the results will be roughly the same. Do you accept that there

is a similarity in the big ticket economic policies between yourself and



I’m astounded that any economist could make a prediction as to what will

happen under a Labor Government when we haven’t seen a tax policy, an economic

policy, a list of savings or a description as to how these policies are

going to be paid for. Can I just say to you because Labor has no policy

and no costing, nobody is in a position to make any prediction at all as

to what Labor would do. You are flying blind. You know, it is like saying

we think this aeroplane is going to land in a certain place, but we haven’t

seen the map or the route. Nobody could make, could possibly make a prediction

about where Labor will take this economy. There is no policy that has been



How important is economics in this election Treasurer?


Front, centre, square, because if Labor gets the economic management of

this country wrong, people will lose their jobs. People will lose their

businesses, and home buyers will lose their houses.