14 September 2003

Interview with Tony Jones, Lateline


SUBJECT: Australian economy, unemployment rate, first home buyers, HECS, leadership


Well now to our Friday forum, on a day when, as we've heard, the Prime Minister has pronounced that we've reached economic nirvana.

In John Howard's words, these are the golden years of the Australian economy.

But not everyone will agree -- the shrinking but still significant number of unemployed for instance, those on fixed incomes, students struggling to pay off HECS debt, and Australians attempting to get into debt to buy a home.

Tonight we're going to Perth where the parliamentary secretary to the Treasurer, Senator Ian Campbell, joins us to discuss the performance of the economy and other matters.

And here in Sydney, we're joined by the Shadow Treasurer, Mark Latham.

Gentlemen, good evening to both of you.


G'day, Tony.


Good evening.


Judging by the PM's comments today the Government's campaign slogan could well be these are the golden years, why would you want anyone else.

What will Labor's campaign slogan be?


Well, I think we need to end any complacency about the Australian economy.

Let's not forget that just last week we had the national account figures that showed a record current account deficit, record foreign debt, record household debt, record credit card debt, negative productivity, the lowest household savings rate in Australia's history, a negative figure.

And we've also got the Reserve Bank giving repeated warnings about the housing cycle and it's very clear that the housing boom is a barrier to lower interest rates and a great concern for the Reserve Bank.

If the boom comes off and it has an adverse impact on the household balance sheet and leads to a contraction in household spending, which is the only thing that was driving growth in the June quarter.

So, everyone likes to see lower unemployment, of course.

The number bounces around.

It's a lagging indicator.

It tells you more about what's happened in the past than what's going to happen in the future with the Australian economy, but we've got some real black marks there on the Howard Government's economic record and it's no time for smugness and no time for complacency.


Ian Campbell, let me bring you.

"In the golden years", would you like to see that woven into a campaign slogan, possibly in an early election?


Well, I think you'd want to admit that because of a lot of solid reform work we've been able to achieve significant economic advances in Australia, which have helped literally millions of people have better living standards, to be able to buy a house, and then get the benefit of improving property values and we've done that at a time when many other countries in the world haven't been able to achieve that.

I do agree with Mark, however, though, we cannot be complacent.

There is a lot more reform to be done.

There are still many, many people who would like jobs, who should have jobs and there are reforms, such as unfair dismissal law reforms, and a whole range of reforms that we should continue to seek to implement and design to make Australia even stronger going into challenging times ahead.



Do you agree with the PM though, are these the golden years?


Well, they're very good years.

You could call them golden years.

If you compare Australia's performance to all of the other developed nations in the world, this is a golden performance by an outstanding country.

The Treasurer and the PM have, in speech after speech, said that the reforms that were put in place by the Hawke and Keating governments -- they've given credit where it's due -- with I might say the constructive support of the Opposition then.

I mean, the Opposition in the Senate then when the Liberals were in Opposition put all of the major reforms of the Hawke and Keating years through the Senate, quite often in a single day's debate.

And of course this Government has had to do all of the reforms, tax reforms, industrial relations reform, markets reform, with a Senate that delays and obstructs and quite often blocks key measures.

So there's a big difference.


Mark Latham, the Government has got unemployment down below 6 per cent.

It's heading towards 5 per cent if that's any indication.

It could get that low.

That was Kim Beazley's mark.

As a Labor man, you'd have to take your hat off to them for that wouldn't you?


Well, certainly unemployment coming down is good, but the Government itself has said the number bounces around.

The Treasurer said it's a volatile figure and when you have a growth rate of just 0.1 per cent for the June quarter, there's no guarantee the unemployment rate won't go up back over 6 per cent.

So everyone's expecting the number to bounce around.

But the key thing is to look out for the next five, ten years of Australia's economic prosperity.

Lets have another round of productivity -- JONES: I think people will be voting in an election before that and if the Government's figure is still below 6 per cent, that's a pretty good qualification for voters isn't it?


Well, let's see what happens with that figure.

But let's also keep an eye on the main game of economic policy.

We need another round of productivity gains.

How can we get that?

We need improved national investments and performance in R & D education and training skills.

We've also got to do something significant about our national savings.

We're drawing on the savings of other nations.

That's why we've got a record current account deficit, record foreign debt.

We need to build a savings culture and have new savings initiatives, particularly at a household level.

And the other thing we need to do is address Australia's housing affordability crisis.

Let's keep the great Australian dream of home ownership alive because at the moment we've got the lowest ever level of first home owner participation in the housing market in Australia's history.


Yes, Ian Campbell, these are not, are they, the best or golden years for first home buyers?


Well, for home owners it has been a remarkable period.

We've obviously given significant assistance through the first home owners scheme.

We have interest rates, that were over 10 per cent when Mark's party were in power last, down to the sixes.

People are about $450 a month better off, on average, and the 70 per cent-odd of Australian people who own their own homes have had their economic security significantly improved because of rising property prices.


Alright can -


That's a positive for most people.


Can we look into the future though?

Let's take for example a university graduate who might come out of a university with a HECS debt of tens of thousands of dollars, looking to buy a new house, maybe have to take a mortgage of a couple of hundred thousand dollars, might have credit card debt as well.

Aren't we headed toward having the most indebted generation of our history?


Well, as Mark has said in the past, you've got to the not just look at the indebtedness.

You have got to look at the ability to repay.

Australia has a very good debt re-servicing capability.

And HECS was a scheme that was brought in by Labor, by John Dawkins I think it was.

This Government is trying to bring in reforms that make sure that education is affordable to all people, regardless of their economic background, and that it can be repaid in a fair way.

And that we're fair to all people across the spectrum.


Let's just address that indebtedness question if we can.

I mean, if people are in debt to the tune of hundreds and hundreds of thousands of dollars just coming out of university, as they could well be if they do try and buy a house, what happens if interest rates go up?


Well, very rarely, Tony, do people leave university and buy a house straight away.

Mark is right to the extent that you have to address housing affordability.

Now, you do that through a range of measures.

Mark's got some of them -- he's sort of saying the Commonwealth should sell some defence land and so forth.

The States, in my assessment anecdotally -- and the Treasurer has announced an inquiry into housing affordability -- but in my anecdotal experience and here in WA, the approval processes for housing development, which are controlled by the States, are abysmal.

And the trouble is there's a fiscal incentive for the States to slow it all down because as the prices of the land go up because you're squeezing the supply, they get more and more stamp duty.

So we have to address the supply side-issues.

You have to address industrial relations issues to make sure that the housing sector is very efficient so you can ensure that houses are built for the best, most competitive prices.

You have to address State stamp duties.

You have to address a whole range of issues if you want to be fair dinkum about making sure housing is as affordable as possible going forward.


Mark Latham, what would Labor do about housing affordability.

You've named the problem, what's the solution as far as you're concerned?


Well, I think we need some schemes to help families save for a housing deposit.

That's why we've been talking about nest-egg accounts, match savings accounts.

We need to build a new culture of savings in this country and in particular give families on a modest income the opportunity to get some Government assistance, some incentives to put the money aside for a home deposit.

There's no overnight solution here and, sure, there's some things the States could do, but blaming the States is insufficient.

Housing affordability is a national responsibility and the national Government should develop some new schemes to ensure people get a chance to, literally, get their foot in the door.

The great problem we have is that historically in Australia, about 23 per cent of the housing market has been first-home buyers.

That was the great Australian dream of market entry.

Today it's under 14 per cent -- an all-time low.

That is the big, big problem.

The first-home buyer is not getting into the market the way they did right through those post-war decades and then the '80s and '90s.

So we've really got to develop a whole new raft of national policies to help those people.


Ian Campbell?


Tony, I think it's worth drawing attention to one of the statistics that Mark keeps pointing to and that is the reduction in the number of first home owners coming into the market.

There has been a significant reduction over recent months, and I think that shows you that people are being more cautious.

There's obviously a number of reasons for that -- prices are going up and so forth -- but interest rates are still very low, and first home owner entry into the market has reduced.

So that one measure that Mark keeps repeating for the purpose of another argument he puts forward, shows you that that particular segment are being cautious.

Now the Government is far from complacent about these things.

We're running a very, very well-managed fiscal approach to Australia.

I mean, one of the key things you do is keep interest rates down.

You do that by ensuring the Government's living within its means.

You keep -- we keep trying to reduce taxation, which increases people's affordability when it comes to the home purchase, for example.


Can I just jump in there -- interest rates are effectively out of your hands though.

In the end, the Reserve Bank will make the judgments on interest rates and, hopefully, they'll do it independently.

What happens to all these people with their massive debt, and I mean housing debt and credit card debt and HECS debt, the whole box and dice, if interest rates do go up?


Well, clearly, interest rates going up will have an impact on the affordability of homes and their capability of servicing debts.

But we are told by the Reserve Bank, and by the leading banks, that debt servicing capabilities in the Australian households and within Australia as a nation are at historic high levels.

So, there are not major risks there.

To keep interest rates at these levels, you have to manage the economy well.

You've got to ensure Government spending is kept in check and didn't blow out, as it did under the Labor Government, where you were running in excess of $10 billion deficits year after year and running up Government debt up to nearly $100 billion, and with the pressure that puts on the money market.

Interest rates are not out of our hands.

If you lose control of the economy, as happened when Labor was last in power, and is happening while Labor is in power at the State level, then things like interest rates and inflation get out of control, and we go back to the boom-bust cycles we had when Mark's party was in power federally last time.


Mark Latham, on the question of interest rates, and I'll ask you exactly the same question, what actually happens if interest rates go up just 2 per cent?


Well, if they went up 2 per cent, there'd be a severe impact on the family budget and, with people highly leveraged into debt, they'd have to make a pretty significant adjustment in their spending and that would have a pretty major impact on the macro economy.

I think out of this discussion -- I'll give Ian the credit of giving us a balanced economic discussion, it hasn't been a political point-scoring session, but I think he's raised a few challenges.

I've raised many more on the policy front.

I think, from the tone of this discussion, it's very clear you have to do more than say these are golden years.

In fact, these are years with many, many significant economic challenges -- housing affordability, productivity, national savings, competitive markets.

There's much more work to be done in the Australian economy.

Listen to the Reserve Bank, and you'll find they're not saying these are golden years.

They're years where there are a lot of people worried about the future direction of the Australian economy.

Let's be honest about that and get away from some of the bluster we've had from John Howard.


But listen to the political point that he did make, which is that under Labor we had interest rates reach 17 per cent.

I mean, politically, that's a huge problem for you, isn't it?

I mean how are you ever going to convince people that won't happen again?


Well, just yesterday, Bob Hawke, who was PM then, said that that was a mistake.

And it's some 12 years ago.

I can point to Joe Hockey's comment in the Parliament this week -

JONES: Do you acknowledge that was a mistake?


I think everyone acknowledges that the rates were held too high for too long, and it had an impact on the macro economy.


That's the legacy Labor has to live with coming into the next election.

When interest rates -


The good news is the next election is not about 1991.

It's going to be about 2004, 2005 and 2006 -- about the future.

Good economic policy is about the future.

And, on the interest rate front, you had Joe Hockey in the Parliament this week acknowledging Australia has relatively high interest rates -- that's what he said -- in relation to the fact our interest rates were among the highest in the Western world.

So it's not all complacency and talk of golden eras and the like.

There's some real issues out there.

You talk to the people trying to buy into a home for the first time now.

It's not caution, it's a lack of money to get into the market because of the prices and a lot of Government policy complacency.


Alright, we'll have to leave it there.

Thanks to both of you.

I think Mark Latham put his finger on it -- a very civil discussion.

Ian Campbell, Mark Latham, thanks to both of you for joining us tonight.


Thanks, Tony.

Thanks, Ian.