TONY JONES, PRESENTER: Tony Abbott is facing heat on broken promises after changing his paid parental leave scheme and fuelling expectations of an income tax hike to pay down debt. But should it bother him? Today the former Victorian Premier Jeff Kennett delivered a remarkable speech at an energy conference where he challenged political orthodoxy, berating politicians for making too many promises and then being too frightened to break them in the national interest.

Well Jeff Kennett joins us now from our Melbourne studio.

Thanks for being there.

JEFF KENNETT, FORMER VICTORIAN PREMIER: Pleasure, Tony.

TONY JONES: Now, a few weeks out from the Budget and you say you're terribly frustrated with the lack of leadership in this country. What's the problem?

JEFF KENNETT: Let's just recap the reality of life as we see it. Firstly, oppositions don't win government, governments lose office. Secondly, there is an increasing trend in Australia for oppositions that can expect to win government to be making commitments not to do things; in other words, tying their hands, reducing the levers they can pull when they get into office. And that's borne out by the Gillard broken promise, an area that is now well and truly established. And thirdly, I'm very concerned that most oppositions that can presume to win government are not prepared for government. So here we are in a country which has a small population, hopefully the world's economy improving, a massive debt and the levers that should be available to our government today are simply not available because they themselves have withdrawn them. So you tonight talk about backflips, others will talk about broken promises, which mean the chances of there being a very short, sharp fix to the deficit - not the debt, but the deficit - is less likely to occur and therefore the pain over the years ahead will be extended because no-one's got the courage to do what's required right now.

TONY JONES: Yes, you could say that if this is a problem for Tony Abbott, he has himself to blame, particularly on the promises issue because he ran as hard as any leader of an opposition that we've ever seen on the broken promise issue, so he could hardly step back from that. He'd be branded a hypocrite, wouldn't he?

JEFF KENNETT: Well, no more so than Bill Shorten, who's now criticised him for making changes along the way. I mean, the last people who should be criticising is the Labor Party. They created this mess. No political party or politician wants to increase taxes or charges, but Tony Abbott and his crew have a real responsibility to do so. But my fear, Tony, is that without courage, we are going to be dealing, as we've been dealing with for the last few weeks now, the rats and mice that aren't going to actually reduce the deficit substantially or abolish it quickly enough so we can factor on the growth side of the equation, which really needs most of our attention.

TONY JONES: I presume by the rats and mice you're talking about some of the policies, the budget cuts that have already been leaked ahead of the Budget. First of all, how do you think that has been handled politically, because every couple of days we get a flag going up the pole about a tax hike or something of that nature or warnings to pensioners? Do you think this has been politically handled well?

JEFF KENNETT: Well I don't know whether those leaks have come from Canberra. I don't know whether they've been created in the mind of the Government's political opponents, or God help us, the ABC. I have no idea.

TONY JONES: Well we had the Prime Minister - on the question of the possible tax hike, we had the Prime Minister sort of forecasting that possibility himself and talking about that wouldn't necessarily be a broken promise at all.

JEFF KENNETT: But this is why I'm so frustrated. The Opposition knew they were coming into government in diabolical economic circumstances. They mightn't have known the actual detail. We're only going to address those circumstances six months from the last election, one sixth of their parliamentary term. And whatever they introduce in May is going to take time to wind itself through the system. So we have simply, in my opinion, denied ourselves the opportunity of moving quickly when the public was ready for there to be movement. We've now had this debate about a whole range of issues which are going to raise - we now talk about a debt tax, which I understand, if correctly interpreted by me at $80,000, it's going to raise $2.2 billion. Well we might be facing a deficit this year of $40 billion. So $2.2 is chicken feed. What are we talking about? We've got to address the big items to get the budget back into balance quickly as possible so we don't worsen the debt, so we can then focus on the growth side to generate more revenue, more taxes and bring the debt down.

TONY JONES: OK. I'll come to your sort of, I guess, prescription for how you actually do that, but stick with the rats and mice, ...

JEFF KENNETT: Yep.

TONY JONES: ... the piecemeal approach that you're talking about for a minute. You say people are reacting, people are angry, people are scared - these are your words. So I'm asking you how this has been handled strategically by the Government.

JEFF KENNETT: Well, it's how it's been handled by the Government and the community. When you delay action, then you're going to scare people, you're going to concern people, you're giving fodder to the media, to the Opposition, who should be given tickets to travel overseas for two years because they created the mess. But John Howard, after the terrorist attack, talked about his Axis of Evil and he said the public should be "Alert, but not alarmed". Well I can tell you right now, right across the public agenda, the public are alert and they're confused and they are alarmed, not just because of government action, but because of the way the community naturally responds to stories that come out, get denied, get qualified, etc. When a country, when a business is in trouble, the best way back to a secure comfort zone is by acting quickly. We don't act quickly, we don't have the courage to act quickly in Australia anymore. And we don't have the vision as to where the action that we might be starting next month is meant to be taking us. It's alright to say, "Yes, we've got to get the budget back to surplus," but why are we doing it? What is the agenda for Australia 20 and 50 years out? Do you know what it is under this government or the previous government? Do your viewers know? I guarantee they don't. We act in a vacuum.

TONY JONES: Well we've heard some big promises, but we have never heard how those promises would be paid for and this seems to be - this is the critical thing and it comes to, let's say, the first of the promises you say this government must break and that is the promise on the GST.

JEFF KENNETT: Well, Tony, as you know, in the mid-year financial forecast they were predicting for '13-'14 a revenue just over $50 billion. Now that's on a GST that only applies to about 50 per cent of the consumer base that we have in this country. There are two options. You can extend the base at 10 per cent across all goods and services, as they do in New Zealand, and you would probably raise approximately, if you make allowances for those less fortunate, certainly above $30 billion to $40 billion a year. If you weren't courageous enough to do that, as the New Zealanders were, and you simply lifted the GST on those goods and services to which it now applies, for every one per cent that you lift the rate, you accumulate approximately $5 billion. So if you went up to 15, you would be getting an extra $25 billion. Now $25 billion, or more, if you had the courage to extend it across the board, would just about put an end to continuing deficits. I'm not saying that the other areas shouldn't be looked at for greater efficiencies and savings, but while a lot of the public would argue against it, it's a short, sharp fix that would work. It would give us the revenue to put an end to this increasing debt that we've having because we're going to incur deficits for the next five or six years or maybe longer.

TONY JONES: OK. So what do you say to the party strategists who would look you in the eye and say that would be political suicide?

JEFF KENNETT: Well I'm sorry, it wouldn't be political suicide. The public are not fools. The public would much rather endure a period of short pain to return to prosperity quicker than actually fiddle away at a splinter for the next five years, adding to the debt, delaying growth and causing more pain to those you're trying to support. Government is not about individuals. Government requires people, it requires broadcasters, it requires all of us to understand what's in Australia's interest? And right now in Australia's interest it is to put an end to these deficits, to stop accumulating debt and we could do that and we should have done it immediately after the last election. We could have done it. We knew the conditions were toxic. The public would have understood it; yes, there would have been bitching and moaning, but you would have then been able to move on. Now we're coming up to May, programs are coming in, rats and mice, I suspect, and no big picture change. So we're probably going to have to deal with deficits for years. Why? We have no vision and as a country we have no courage and we're all to blame for that.

TONY JONES: OK. Well I'm going to say that we have to focus on leadership here because you did right at the beginning. So are you making a case that the leader, Tony Abbott, was a very good leader of opposition, but the jury is out, in your opinion, as to whether he's a good Prime Minister?

JEFF KENNETT: No, no, I think he is a terribly honourable man and I say that sincerely. I was in Sydney yesterday - more headlines over ICAC. You referred to it today. People are sick and tired of seeing their political elected leaders behaving outside what is good, common practice and it's literally absorbing the energy of whole communities. I think Tony Abbott is a very honourable man. But this goes back to this concept of making promises in opposition which you then are bound by because the media say a change is a backflip or a broken - what's more important? A backflip, a broken promise or the country's long-term interest?

TONY JONES: No, well, I'm going to interrupt you there because a lot of this will come down to how you define honour and indeed how Tony Abbott defines honour. If he defines honour, as he has been, as keeping to election promises and if he's as good as his word over the years when he attacked Julia Gillard for not doing that, his honour will be impeached by breaking promises.

JEFF KENNETT: Well, I'm sorry, the national interest is always more important than an individual interest. The role of government is more important than the role of the individual who heads it. And when they came into office and they got that first briefing - had it been me and you can be very grateful that it wasn't, I would have said, "Enough's enough. We're facing a $40 billion deficit. We're going to stop this. This is what we're going to do. We'll do one of these two options with the GST. I know I said we weren't going to touch it, but I need to be pulling all levers. And I've got to do it so that you, my community, can return to a good place, a fully-employed good place, as quickly as possible. If I don't do that, then I'm afraid this community is going to be buffeted and a lot of pain felt for many, many years to come."

TONY JONES: OK. Another big promise that you say they should have broken is the one on industrial relations. You specifically talked today about penalty rates, targeting penalty rates, but will Tony Abbott ever dare to do something as radical as what you might be suggesting when he's still haunted by the ghost of WorkChoices?

JEFF KENNETT: Tony, my one regret politically was leading up to the 1988 election here in Victoria and NSW, Nick Greiner and I said to each other, "If we win this election, we will move on the same day to abolish penalty rates." Again, there'll be squealing, but have a look at the number of restaurants ...

TONY JONES: But you handed that power over to the Federal Government.

JEFF KENNETT: Yeah, and why did we do that? Because we recognised Australia was so small that you can't have seven or eight different lots of industrial relations throughout the country. It's why we amalgamated councils, it's why we put into the health system a payment by performance rather than payment by demand.

TONY JONES: We won't go too much into that history. Go to WorkChoices, though - I should say, go to penalty rates.

JEFF KENNETT: Tony, I'd abolish them on day two. I'd have fixed the GST for the betterment of the country. I would have moved on penalty rates the next day. Yes, there would have been squealing. The beauty about acting quickly, particularly at a federal sphere, they've only got three years to work these changes through and at the end of a period it's no point the Prime Minister or you or anyone else saying, "Look what they've achieved." The public have got to recognise that themselves. So in Victoria when we put the reforms in, we had a four-year term and it was only after about 2.5 years that the public started to see that our rhetoric behind why we were doing things was starting to work and that led to our re-election. You've got to act in the best interest of the long-term community and the broader - what I would call the Australian land mass and the people it supports.

TONY JONES: I'm going to ask you the obvious question 'cause a lot of people will be listening to this thinking this is a very articulate case for change.

JEFF KENNETT: Yes.

TONY JONES: Why isn't it being made at the federal level by the leaders of the country?

JEFF KENNETT: Because of what I explained before. They've made these silly - everyone's made stupid bloody promises not to do things. Tony should have come to office with every lever available to him. He should have had the courage, as they've done on the boats issue, to act on the economic agenda quickly. I think you said in your opening remarks that the Audit Commission report is coming down tomorrow. I have no idea what's in it, but I guarantee you it's going to scare a lot of Australians. And the question we'll all ask is: how do we respond to this independent review of Australia's condition? Without knowing the details, my assessment is: this country has been living beyond its means for some years, thanks to the Labor Party; put them aside. I don't care how they bleat; they're irrelevant. What I do want to see is us act in a way that will give us all an opportunity to grow and there will be no growth if we keep fiddling with things like deficit. Put an end to it quickly. You can do it. It won't be popular with everyone, but you can do it.

And don't forget - sorry, let me just finish. If you extend the GST to every goods and service as they do in New Zealand, and their economy's in a much stronger position than ours, as you know, the people who benefit from those exemptions at the moment are not those on low income, they're those on middle to high incomes who are getting access to education on which they're not paying GST. So you might be saving as a wealthy person tens and tens of dollars to those who are on low income saving - or not paying one. We need to move quickly and we are denying ourselves the opportunity in an environment where we've got four billion people in our sector of the world where we are becoming irrelevant because, as I say, we're without vision and we are without courage.

TONY JONES: OK, I'm going to take you up on the vision thing because you argue there's no overall vision. Joe Hockey would surely dispute that. He says the age of entitlement is over - that is his vision, to have a budget that reflects that philosophy that the age of entitlement is over. Do you believe that that will be the case in this budget?

JEFF KENNETT: I've no idea. They haven't actually rung me and asked me and I'm not surprised. But I don't disagree with Joe, the age of entitlement. We've been building up - but the point is: why is the age of entitlement over? What is the other side of the agenda that's going to benefit from that? And as I said to you earlier, what do you think the vision for Australia is in 2020 or 2050 under this government or the previous government? Ask your listeners. I mean, you sit there on Monday nights trying to fire off politicians, but the reality is you're not trying to build something. We're dealing with debt, we're dealing with deficits, we're dealing with the age of entitlement, but we should be doing all of this for some reason. Now - so we have an agricultural industry which grows food in the main for 23 million people. We export a bit. But we should have a national water policy, a national agricultural policy that is producing food and processing food for 500 million people - minimum.

TONY JONES: And I might add, because you've made this point as well, a national energy policy.

JEFF KENNETT: Oh, absolutely.

TONY JONES: Just on that subject quickly, should a national energy policy include putting aside gas reserves for domestic use so that the domestic consumers aren't hit with the same prices as export gas?

JEFF KENNETT: Well, certainly if you don't provide for your own, you very quickly find out that your own aren't there or they're of such a subclass in terms of the region in which we live and this is where the franking of - whole issue of the debate is taking place. But it's why we move to privatise the energy sector because we recognise we needed more money into it, we needed more competition. I would say to you that one of the reforms that we desperately need is a review of the roles of government. I mean, it's absurd that we have all these industrial relations policies around the country. It's absurd that we have areas of energy in a small country of 23 being decided by different local boroughs, if I can put it that way. That's not the say we're going to get rid of a tier of government; we could make them a lot more efficient. But COAG's meeting this week - next week ...

TONY JONES: They probably won't take you up on your idea of - your old idea of joining Victoria, South Australia and Tasmania into one mega state, will they? But ...

JEFF KENNETT: No, they probably won't, but what a wonderful idea! What a wonderful idea!

TONY JONES: There are so many; we can't deal with all of them. Let me just go to one criticism you've had of a budget-cutting measure and that is to cut funding or apparently to cut funding for research for the CSIRO and other bodies.

JEFF KENNETT: I would have, had I been pulling the levers, continued to work towards the delivery of the National Disability Insurance Scheme. I think that could be the most important social reform of this century, if we roll it out compassionately and can afford it. I would have put on hold both the Gonski and the paid parental at any level until we were back in the black. Without knowing the details again and listening to the rumours that are starting from somewhere, the concept of removing money from science when we have a very good record in science, whether it's medical, whether it's engineering, whether it's the cochlear, whether it's CSL, we have a wonderful record. One of our future opportunities lies through being a smart, intelligent country and we can't afford to start sending out messages, not only to the world, but to our young, that science and engineering aren't two of the highest priorities.

TONY JONES: Jeff Kennett, we're going to have to leave you there. It sounds like you're mad as hell and you're not going to take it anymore.

JEFF KENNETT: Well I am going to take it because I'm only a pensioner and - but I am, as you said earlier, very, very frustrated. I've always believed that leadership is not difficult, but leadership requires simplicity, good people, a vision, a strategy and a bit of effort to deliver and ... I'm worried, terribly worried.

TONY JONES: Thanks for joining us. It's been a long time between interviews, but we're very glad you came on for this one.

JEFF KENNETT: Thank you. Have a good night.