24 June 1997
E&OE....................................................
Well thank you very much Sir Colin, and ladies and gentlemen. It is for me a very great pleasure to talk to the Confederation of British Industry and I must say Sir Colin in response that I suppose if you are faced with the combination of an Australian Prime Minister and 63 years of cricket history, your almighty is your only resort.
Ladies and gentlemen, I speak to you today as not only as Prime Minister of Australia, but somebody who on a personal basis is very strongly committed to the depth of the Anglo-Australian relationship. And as somebody who sees that relationship in anything but exclusively historical terms. It would of course be tempting given all of the history and all of the values and all of the shared experiences that our two countries have in common, it would be tempting to luxuriate entirely in the past and to think of our relationship as an entirely an historical one. And that my friends however accurate it may be in some respects, would of course be an enormous error. And one of the aims of the days that I've spent in the United Kingdom is to reinforce what is to my mind the great value of the relationship, and that is what it offers now and what it can offer to both our countries and both our societies in the future. And I am very happy to say that in the discussions I had with the new British Prime Minister, Mr Blair, last Thursday and in the discussions I've had with most of his senior ministers, and I'll be seeing the Foreign Secretary immediately after this luncheon, it is also the view of the new British government, and might I say also the view of the new leadership and the former leadership of the Conservative Party in this country, that the Anglo-Australian relationship is something that no matter what the richness of its history, ought to be seen in contemporary and futuristic terms.
We have of course not only deep bonds of values and culture and history and language and philosophy, but we also have very very deep and enduring economic links. For example, the aggregate foreign investment from the United States in the Australian economy is $107 billion. The United Kingdom is a bare $6 billion behind that at $101 billion and those two countries are significantly ahead of Japan, which is the third largest foreign investor in Australia at $55 billion. The United Kingdom remains for Australia a major destination of external investment, something in the order of $27-$30 billion and Australia competes with France and Germany for third position so far as the level of direct foreign investment in the United Kingdom is concerned, after the United States and The Netherlands.
So I speak to you against that very strong background of economic association and very much as seeing the relationship between our two countries in contemporary terms. I also take the opportunity to echo Sir Colin's remarks about the strength of the Australian economy. Our economic growth according to the OECD in the coming financial year is projected to be stronger than the averages of any of the G7 countries, at around 3.75 per cent. We expect to maintain an inflation rate of around 2 per cent.
My government inherited a fiscal deficit in an underlying sense of about $10.3 billion and by the end of our first three years in government, we will have converted that on projections into a surplus of $1.6 billion. By the year 2000 we will have almost halved the general government net debt as a ratio to GDP from 19.5 per cent to 10 per cent. Public debt and outlays to GDP in Australia will be the third lowest in the OECD area. Our housing interest rates are lower now than they have been since 1973. Business investment is running at 13 per cent of gross domestic product, a record in real terms. It grew 16 per cent in 1996-97 and is projected to grow at 8 per cent in 1997-98. And the most reputable, or one of the most reputable of the independent economic forecasters in Australia, projects that $92 billion is the aggregate of possible, probable and committed investment projects in Australia.
I mention these statistics because it is important that visiting Prime Minister states the bald facts and the important underlying facts about the strengths of our economy. It does have very great strengths and it has very great optimism. And some of that is due to past decisions, a lot of it is due to the changes that we have implemented since coming to power. We do have a coherent, integrated economic strategy. We want to raise national savings, and we want to pursue micro-economic reform to increase the growth potential of our country.
We have brought in a charter of budget honesty which entrenches principles of fiscal transparency. For example, whenever the next Australian election is called, the Federal Treasury will automatically publish a statement of account giving the real position of the budget, rather than a mythical, election-influenced version of that particular statistic. We have given the Reserve Bank of Australia an inflation target and we have formally established greater independence for the Central Bank.
Our landmark changes to the workplace relations legislation which came into operation on the 1st of January this year are now beginning to flow through with beneficial effect to the Australian economy. They entrench freedom of association, they contain effective sanctions against secondary boycotts, they facilitate non-union workplace agreements, and they significantly modify the anti-employment, unfair dismissal laws of the earlier legislation. We are implementing significant competition policy in the electricity - gas areas and from the 1st of July this year there will be a major deregulation of the telecommunications industry.
We've also made major changes of benefit to the small business community, and once again from the 1st of July any small business operator in Australia will be able to sell his or her small business and invest the proceeds of the sale of that business, up to a total of $5 million, without incurring any capital gains tax liability of any kind and that investment can take place in any kind of business and not just one of the type of the business that's been sold.
We are in the process of completing a very ambitious programme of privatisation, including of course the privatisation of all of the major airports of Australia. We secured Parliamentary approval to the sale of one-third of Telstra, the telecommunications operator in Australia, and that will comprise at a Federal level the largest privatisation in Australia's history. And I am interested to note that at a State level, the NSW government - its own internal party processes willing - will undertake a sale of the electricity operating capacity of that State, following the very successful privatisation programme carried out by the Coalition government in Victoria.
I mention those things to reinforce the fact ladies and gentlemen, that through Australia there is a very strong commitment to an ongoing process of micro-economic reform. The enquiry into the financial system chaired by Mr Stan Wallis, has made major recommendations which the Government will respond to very soon, and those recommendations if implemented could yield significant benefits in cost savings and efficiencies in the Australian economy.
And importantly, I have also re-opened the issue of taxation reform in Australia. We do have in Australia over-reliance on personal income tax as a source of revenue. I was reminded of this the other day in some discussions with group of British advisers, including the head of your Treasury, and it was pointed out to me that the reliance in the United Kingdom on income tax as a source of revenue is in the order of about 25 per cent of your total revenue. The figure in Australia is closer to about 50 per cent.
And that of course underlines the importance of tackling taxation reform. It has been a difficult issue in the past, many of you will be familiar with the views that emerged from the 1993 election campaign in Australia, but we cannot forever continue with a taxation system that has deleterious effects on incentive, and as time goes by will suck ordinary wage and salary earners into an unacceptably high level of personal taxation at the marginal rate.
I've already touched to my friends upon the strength and the importance of the bilateral economic relationship between Australia and the United Kingdom, but can I just make one thing that's very important about that relationship and that is that quite naturally the United Kingdom's future is very bound up with the future of Europe. That is understood by Australia and although there may be some features of that association which from time to time because of its impact on Australia may draw adverse comment, it is nonetheless an historical development which my country and my government understands only too well.
It is equally the case that Australia's economic and political future is very heavily involved with the Asia Pacific area. I've frequently been asked on my visit to the United Kingdom is my government any more or less committed to the links between Asia and Australia than the predecessors to my government. The answer to that is no. If there is a difference of emphasis, then the difference of emphasis is that we are following an "Asia also" approach and not an "Asia only" approach, and that we believe that the links between our country and the United Kingdom, our country and the nations of Europe and our country and North American remain very important in that they can be pursued in a way that is utterly complimentary to our relationship with the nations of the Asia-Pacific region. And when you think about it there are no two countries respectively in Europe and Asia who know each other better, trust each other more, and can contribute to each other more than Britain and Australia.
And perhaps one of the features of our modern and future association is that we can further help each other to understand and to interpret the respective regions which are our respective destinies in the future. All of us ladies and gentlemen will gain from further trade liberalisation. The APEC grouping in which Australia plays such an important and energetic role will push that agenda in our region. The WTO remains very important to the process of trade liberalisation, and we, if you will understand it - I am sure you do - will continue to argue very strenuously for reforms to the common agricultural policy of the European Union.
And no Australian Prime Minister ought to visit the United Kingdom or indeed any part of Europe and fail to remind European governments of the disproportionate impact of the common agricultural policy which involves a fifty percent subsidy for agriculture within the European Union, compared with a nine percent subsidy for Australia and it is a subsidy in the case of the European Union that absorbs almost half of the European Union budget and if I might throw in for good measure the average of manufacturing tariffs in Australia at the present time is about four percent.
Ladies and gentlemen, I therefore come and talk to you as first and foremost the Prime Minister of a country whose economy is strong, whose future prospects are exceedingly strong, and a nation and a people that has a very deep commitment to continued close association with the United Kingdom and the other nations of Europe, but a nation that fully understands the depth and the breadth of its future associations with the fastest growing region in the world and in the Asia-Pacific region.
We are good friends and the true test of a good friendship is that it can absorb disagreements and differences of opinion without that friendship being undermined. It is only in the fragile friendships and the peripheral friendships that cannot afford to absorb and cannot sustain differences of opinion. And it is inevitable that when you have a close relationship you will have disagreements, and how to handle those disagreements is a measure of the purity of the relationship. And one disagreement of some importance to my country which is emerging at the present time relates to the issues of climate change.
Australia's economy is very different from the United Kingdom's. We are an energy exporters, we are an efficient supplier of raw materials and a processor of those raw materials to the fastest growing region in the world. The proposals that the United Kingdom and other European Union members are pursuing in relation to Climate Change would have an adverse affect on the Australian economy.
If implemented they will lose, cost us around 2 percent of our GDP in the year 2010. The sectoral impact would be quite large, for example, our aluminium industry would be half its projected size and overall wages would have to fall against projections by nearly 20 percent by the year 2020 to accommodate the necessary adjustments to the Australian economy.
The welfare loss for the average Australian would be greater than that for the average European. No government in Australia could tolerate this impact and I can say without fear of contradiction that the Australian opposition agrees with us on this point.
In our view the pursuit of legally binding, uniform emission targets is unfair and an arrangement is that unfair will not be effective. And part of the reason for this is that the growth rate in emissions from developing countries is much higher than for developed countries.
By the year 2020, non-OECD countries will be producing over 70 percent of global emissions. The European Union's proposal will actually encourage emission intensive industries to move from developed countries to developing countries, thus helping to defeat the purpose of the whole exercise. For example, aluminium smelting which is done very competitively in Australia largely for export to the rest of the world would move to developing countries. There the smelting would continue to emit at the same rate if not at a greater one there would be no gain for the environment, the Australian economy would suffer and people in Australia would lose their jobs. And the global economy itself would also suffer.
Legally binding targets are therefore not only unfair, they are ineffective as a response to climate change and they are economically inefficient. For this reason, Australia has been proposing different targets for different countries. That would result in a more equitable sharing of the costs of reducing emissions, and a better chance of bringing developing countries into a global approach. The EU itself clearly recognises the logic of what I am arguing because it itself has agreed to different targets for member countries within an overall EU target or European Union bubble as it is described in the language of this particular debate.
Let me be clear in relation to this. I am not saying that there is no need to respond to the challenges of greenhouse gas emissions. Nor am I saying that Australia wants a free ride. We are prepared to pull our weight in developing energy efficient policies domestically, and our government and our industry has begun to make creditable progress in key areas.
For example, we have a co-operative programme with companies comprising 45% t of green house emissions and by the year 2000 they will reduce their projected emission levels by 14 percent below what otherwise would have been the level.
We are in the process of reforming electricity and gas markets. The Natural Heritage Trust of Australia which will invest $1 billion in restoring the Australian environment will reduce vegetation loss and revegetate degraded land. We have recently announced that we will phase out leaded petrol by the year 2010.
But an approach to reducing greenhouse gases which requires every developed country to make the same arbitrary cut regardless of the structure of the country's economy, regardless of the relative efficiency with which the country can reduce emissions, regardless of massive differences in costs to the individual economies into the global economy, and regardless of the need to find a way of engaging developing countries strikes us as irrational and ultimately unworkable.
What does not seem to be widely understood, is that the European Union's proposal would produce only marginal gains in terms of the world's total level of greenhouse gases. For example, if the EU's proposal were accepted, ie that OECD countries reduce greenhouse gas emissions by 15 percent by the year 2010, then global emissions would be around 7 percent lower only than if we were to proceed as usual.
Australia is arguing for a comprehensive approach which differentiates amongst all countries on a fair basis and will have a real and lasting impact on climate change.
Sir Colin and ladies and gentlemen, I want to thank the Confederation of British Industry for the opportunity that you have given me today to say a few words about the features and characteristics of the strength of the Australian economy, to reaffirm the tremendous importance that my government in Australia and the Australian people and the Australian business community places on the economic association between our two countries. And also, to take the opportunity of expressing the considerable respect that I have for the current state of the British economy. I do not think it is an exaggeration to say that the British economy is more robust and stronger and a more attractive place for investment than just about any economy in Europe and compares very favourably with others around the world.
I welcome the fact that in the discussions that I have had with your new Prime Minister and other senior members of his Government that there is an emphasis on the pursuit of pro-business policies. And that there is an emphasis on maintaining the quality and the momentum of the very significant economic reforms that were undertaken in this country in the 1980s and the early 1990s.
As somebody who first came to Britain as a just graduated working Australian who did Europe over a period of 12 months and who lived in this country for a large part of that time in the early 1960s and who has visited it on a number of occasions since, I must say that the apparent strength and robustness of the British economy and the optimism of its people is greater now than I think I have experienced at any time over that period of 30 years. And for somebody who puts store on the Anglo-Australian relationship and who wants to make his own small contribution to the strengthening of that relationship that is a very welcome development and I thank you most warmly for your courtesy and for your hospitality.
Thank you.