Embargoed until delivery F77/ 244
4jjAUSI ' RALIAj
FOR PRESS 4 NOVEMBER 1977
ADDRESS TO MELBOURNE STOCK EXCHANGE DINNER
I welcome this opportunity to discuss with you tonight the state
of the Australian economry particularly as it is now clear that econanic
recovery is well under way. It is clear that 1978 will be the
best year in terms of overall economic performance in over five
years. I also welcome this opportunity because my Government has always
recognised the vital role of the Australian capital market in our
drive to achieve full economic recovery.
During the long period of sustained expansion of the 1950s, 1960s
and early 1970s, the institutions of our capital market, among
which the stock exchanges were prominent, played a fundamental
part. They marshalled financial savings from within Australia
and overseas, channeling them to firms, individuals and governments
wishing to carry out investment. Almost thirty years of continual
industrial expansion and the great development in the 1960s of our
major mineral industries were substantially due to the vitality,
initiative and soundness of our capital market.
That success story came to an abrupt end in just three years
1973, 1974 and 1975. The reasons were high and increasing inflation,
appalling low profits, and penal taxation. Share and other security
prices collapsed, while interest rates jumped to previously
unimagined levels. The long-term capital market in particular
effectively disappeared; new industrial issues fell right away
as companies contracted their new in . vestment plans -to the minimum;
overseas investors withdrew.
The capital market is often regarded as the bell-wether of the
emerging economic trends in -the economy. It is with pleasure
therefore that I have been observing recent capital market
indicators suggesting renewed signs of optimism. Interest rates
have begun to decline. In the Government bond market, -the longterm
rate has recently come down below 10% for the first time
since mid-1975. Provided current policies are maintained, there
is good reason to expect this trend to gather momentum in the year
ahead, spreading to include-a wide range of other interest and
security yields. / some
-2
Some industrial and mining companies have been demonstrating
their confidence by expanding their capital raising and it is pleasing
to see sare signs of greater activity in the issues of longer
dated securities.
Both these trends, which appear likely to continue, indicate basic
confidence in the waythe economy is heading. Let me tell you quite
plainly that such confidence is entirely justified.
Let us recall for a moment the kind of economy we took over when
we came to office. Inflation was rampant and unemployment
increasing sharply. Real wages had far outstripped productivity.
The public sector's claim on resources had grown far too big.
The money supply was out of control. Investment was down. And
Australia's competitiveness had been badly damaged. From the
outset, our economic strategy aimed at reducing inflation and
getting private business who employ three out of four Australiansback
on its feet. We realised that the task of restoring the
nation's economy would be a lengthy and difficult one, and we
made this plain publicly before the election. Above all, inflation
had to be beaten.
In our twenty two months of office, we have not wavered off this
course. We have resisted all pressures to expand public spending,
even though at times there seemed to be some short-term political
advantage in doing so. For the
first t ime in _' many yerthe Commonwealth Government's share
of GDP has actually fallen. Without this restraint, we could
not have introduced our tax reforms, and even with all our tax
cuts, we have still cut the deficit by nearly
We have succeeded in steadily winding down underlying money supply
growth, from around 20% per annum prevailing in the second half of 1975
to about 10% in the financial year just ended, and the Budget is working on an
Becuseofour restraint, because of our success in making the
provision of Government services more efficient, we have now
achieved a responsible spending base.
-Our policy of responsibility has brought major successes. There-
. eet is-ye) iar-az m'j orb reak through in-uti . inf lation,___
and we_ have-gone a-yery long way-towards breaking inflationary
The. 2% ConI=*-sumer Price-Index for
the ' September quarter confirms that inflation is now running at
around 9% and falling. National accounts deflators support this.
Based on the latest available six monthly period, every one of the
following indicators puts inflation under 8% per annum: prices
of articles produced by the manufacturing industry, prices of
materials used in house building, prices of materials used in
other buildings.
Over the three nm~ ths -to July, average prices of mate~ ials used in
manufacturing industry increased by less than Overall we have
found it necessary to substantially revise downward the inflation
projection in the Budget documents. / Th es e
-3
These achievements on their own are most satisfying. But
more significantly when judged against other countries, our
inflation rate now broadly matches that of our major trading
partners. This is not just a political boast on the Government's
part. It is a statement of fact. The average inflation rate in
twenty four OECD countries has remained fairly static in the
8-10% 0 range for two years now. Our underlying rate has gone
down from 17% to around This is a major achievement when
it is remembered that the gap between Australia's rate of inflation
and our major trading partners was some six to seven
percentage points in 1975 under the former Government.
By maintaining our current policies, I am confident that the
rate of inflation will be running at an annual rate of between
by the middle of next year. The quarterly rate of increase
in the Consumer Price Index is now estimated to be below 2% in
the March and June quarters, of next year, and declining further
as 1978 progresses.
I note that there has been an increasing consensus among economic
and finance commentators that inflation is coming down rapidly,
and that this has strengthened greatly our prospects of sustained
recovery, sound external account, falling unemployment, and
lower interest rates. As one commentator has noted, we are
rapidly approaching the point of " an emphatic, sustainable turn
upwards in -the business cycle".
We have done what was needed to reverse the disastrous economic
policies of our predecessors. There has been an increase of
23% in company profits for 1976/ 77, a significantly higher
share of national income going to profits, a lower household
savings ratio about two-thirds of the way back to ' normal',
and a moderate expansion in real gross non-farm product.
In the eighteen months before we came to office there was
virtually no real growth. In our first eighteen months there
was real growth of Evidence is now emerging of new capital
investment projects moving ahead, particularly in the extractive
and manufacturing industries. A recent Government
review of major investment proje . cts planned by companies in
Australia reveals substantially greater investor confidence.
Firm investment proposals totalled around $ 5.8 billion,
probably projects some $ 8 billion, and longer-term possibilities
about $ 7.1 billion and this survey did not include investments
of under $ 5 million.-each.
This is a bright investment outlook. It is good news for
Australia. It means more jobs for Australians. The 1977/ 78
Budget charts a course of strengthening recovery during the
course of tLhe year. This recovery will be founded on expansion
in consumption, investment, and a turn-around of the balance of
trade flowing through from devaluation. The emergence of the
economy's new strength will be more apparent as we move into 1978.
/ There was
4
There was real growth in retail sales in the September quarter.
In money terms, sales increased by compared to 2.5% and
1.8% in the previous two quarters. A survey of capital expenditure
by the Bureau of Statistics shows an expected increase of
14% in the current half year which would be the largest
increase in recent years. Housing finance approvals by major
lenders were 18% higher in August than the 1976/ 77 monthly
average. In the June half-year private comnencenets in construction
( other than building) were up 61% on the same period last year.
Export volumes rose in the September quarter.
In the finance sector, as you would know, a number of factors
have led to expectations of lower interest rates. Significantly
lower interest rates are vital to full economic recovery. Those
who call for additional spending on one programme or another
fail to realise the implications for interest rates of greater
public spending. If this Government were to resort to Labor's
big spending approach the community's confidence would be
shattered. The opportunity to lower interest rates would be
gone. There is no way this Government will treat this election
as an auction the ALP has already promised $ 3,000 million.
What we offer is a much rarer commodity a responsible and
effective Government.
In the coming election campaign, there is a choice of the utmost
clarity. We are committed to a system where worthwhile free
enterprise. can-flourish-Our commitment is not founded simply
on the fact that free enterprise is the most efficient economic
system, or the most efficient producer of the resources required
to provide a better life for all Australians, though it is both
of these. We support free enterprise because it is the most
democratic system. It confers on the individual maximum freedom
of choice. It allows the individual maximum opportunity to
innovate, to. strike out on h. i-s own, to try out new ideas and
prcjects. it makes the indiviaual consumer the ul'timate
allocator of resources.
The Australian Labor Party of course supports an entirely
different approach. We have the evidence of three years of
Lab-or rule. We also have the evidence of their new economic
* planning policy, adopted in Perth last June, which is binding
o ery L~ abor Par-liamentarimn-w-Let me read-you some extracts.
-Laboofrb 6wtitle-uibnliitcia e -nnadtipoinavialt epsl eacntnoirnsg ttoo trheel atgeo altsh e ofp ersfoocrimeatyn, ce
and to give directibn to the allocation of resources between
the various sectors in the economy." " A Department ( will be)
created with the responsibility to co-ordinate preparation and
maintaining of plans" " Labor will set the overall objectives
Government will intervene where necessary to reach national
objectives" " Public enterprise is particularly to be established
or extended in the fields of banking, consumer affairs, insurance,
finance, marketing, housing, stevedoring, transport and in areas
of social monopoly." These words represent the Australian Labor
Party's plan for Australia a vast bureaucracy armed with vast
powers to impose controls on the daily lives of us all. / Elements
Elements of this plan to again damage and disrupt business
if they were ever to get a second chance are now being publicly
disclosed. Mr. Whitlam has indicated his disapproval of the
investment allowance, the taxation incentives to mining
companies, vital concessions to rural industry such as income
equalisation deposits, our changes to private company taxation
laws. In addition, our personal taxation reforms, which will
release $ 2,250 million from revenue into the hands of individuals
and companies this financial year and $ 2,935 million next year,
would be far from safe under Labor. our new tax scales have
not been endorsed by the Labor Party and Mr. Hayden has refused
to commit himself on tax indexation.
Significant advances have been made in restoring the Australian
economy, and while unemployment will, of course, rise in the
Christmas period of school leavers it always does from
February unemployment will fall in a steady and sustained way.
The Government has shown sensitivity and concern about unemployed
Australians. We have developed policies that tackle its real
causes. Firstly we have tackled inflation. Labor's policy of massive
expenditure would lead to inflation rising again, and there
would be no permanent gain for the unemployed. Wie all remember
how Labor panicked as unemployment rose in 1974 how they
introduced the now discredited RED scheme, only to stop
spending on it in 1975. The same discredited schemes still
form the basis of Labor's current economic platform.
Compare our policy decisions on unemployment. We have given
industry the protection it needs. Recent trade figures show
the effects of devaluation boosting exports and curtailing imports.
We have introduced a number of new imaginative programmes to
provide immediate help to the unemployed, and, unlike Labor's
RED scheme, these will bring an enduring benefit to those who
participate in them, and they are being achieved within a
responsible economic framework. They include National Employment
and Training Scheme, Special Youth Employment Scheme, Community
Youth Support Scheme, Relocation Assistance, and the CRAFT Scheme
for Apprentices. more than 122,000 Australians mainly young
people have already ben~ itted from these programmes. They
are all schemes which help to improve basic skills, and no
eligible'person will be-refuised assistance'.'
The Government has also initiated an education programme for
unemployed youth which helps young people develop skills such
as literacy and numeracy needed in the workplace. Specially
selected teachers at technical colleges are re-teaching small
groups, and early results of this new programme have been most
encouraging. / Only a
-6
Only a few days ago, at the Premiers' Conference, it was
unanimously agr * eed that a Special Youth E~ mployment Task Force
be set up in each state. That force will promote a major
campaign to encourage employers to make a special effort to
employ additional young people from the beginning of 1978.
I trust you and your clients will respond enthusiastically
to this campaign.
Mr. President, I have greatly enjoyed this opportunity to
discuss with you and other members present here tonight the
economic problems which the Government has had to tackle, the
successes so far achieved, and the prospects ahead. In my view
it will not be too long now before the traditional and crucial
role of the capital market in raising much of the capital for
the re-equipment of our industries will assume even greater
importance. The circumstances will not be quite the same as
they were in the 1960s.-New initiatives, new techniques, will
be called for.
I am sure that the Government and the community can look to you
to live up to our expectations and to carry out your role with
the responsibility and flair that is in your best tradition.