7 PM
PRIME3 MINISTER
FOR MEDIA FRIDAY, 20 AUGUST, 1982
ADDRESS TO FINANCIAL REVIEW LUNCHEON
This year's Budget above all faces up to the real problems
confronting the Australian economy; the real difficulties,
the hardship, with which the world recession is confranting ordinary
Australians. It provid-s a basis on which we can sk a: ni e; xect the : h.. ole
Australian community to work together to ensure that the damage
we suffer during the world downturn is limited and that we
stand prepared to take the fullest possible advantage of world
recovery when it eventually comes.
There is no question that the Australian econony is suffering
significantly as a result of the continuing world economic
downturn, to an extent which no-one anticipated even just 12
months ago.
As the Financial Review stated in a recent series of articles
on the dilemmas of current economic policy, with the benefit
of hindsight it is obvious that an Australian recession had to
come. What no-one anticipated was that the global economy
would slip into a recession so bad and so prolonged following
the 1979/ 80 oil price shocks. But when six of the major
seven world economies have seen industrial production fall or
stagnate; when industries such as steel and motor vehicles
in the United States are operating at half capacity; when
world trade has fallen in value for the first time in over
years; when protective barriers are being raised; when real
interest rates persist at historically high levels despite
some welcome falls in the U. S. in recent weeks; when unemployment
in the O. E. C. D. countries is already about 30 million, and predicted
to go higher; who can doubt that there is a serious world
economic problem Who can be surprised that Australia has
been affected, although as a result of Government policies
and our resource endownments it has taken'longer than
in most countries for the effects to work through. Declining
export markets, combined with significant falls in the world
prices of many of our products, have now hit us hard and
together with the high real interest rates world wide, have
significantly affected investment in Australia, although it
-is encouraging that investment is still continuing at a
relatively high level. 2
As I have been saying for some time, and again as the Financial
Review has supported in its recent articles, real recovery
cannot be expected in Australia as long as the U. S.
economy continues in recession; and while there have been
hopeful signs in terms of activity and interest rates in the
I'll only 1elieve in a real and suistained
recovery in the U. S. when I actually see it.
The difficulties facing Australia, and Austrhlians, are not,-
however, liuited to those created by condi'ion s in the rest
if the w9rlA. Industrial relations problems, including
n the vital area of our export ports, have threatened our
reputation as a reliable supplier; and while wage settlements
in maz,.-y over3eas countries have been at or below increases
in consumer prices; Australia's wages have risen at rates aell
above the CPI; and our labour costs have been further increased
by the continued push for shorter hours.
Against this background, our import competing industries as
well as our export industries have suffered a significant
loss of competitiveness; profitability has been severely
squeezed; investment and activity have stagnated; jobs n. ave
been lost, and the growth of employment has fallen.
As a consequence, there are real difficulties, not only for
businesses, but for all Australians. In the face of
these difficulties there are a number of things we can, and we mus.
do. Above all, we must do what we can to minimise the damage"
to the Australian economy, and the Australian people, of the
world recession; we must do what we can to continue to build
up the Australian economy, and to prepare ourselves to take
advantage of recovery when it eventually does come; and
we must work together to solve the-problems that have put our
competitiveness at risk.
In this context, it was clear to the Government that the
1982/ 83 Budget had to balance, on the one hand, the need
to assist those facing real difficulties, to provide a sound
basis for working together; and on the other, the need to
maintain a responsible approach to economic management,
to provide a sound basis for taking advantave of any signs of world
recovery. In balancing these two requirements, the Government
was faced with the fact that its budgetary position was
already being directly affected by the economic downturn,
through declining growth of tax revenues and rising expenditure
commitments. Indeed, before any decisions were made, we faced
the prospect of an increase in the deficit of around $ 1 billion
as a direct consequence of economic conditions. In the
circumstances,. the Government decided that the. balance it sought
would be secured by a Budget which gave real-help to Australia's
families and other sectors of the cormunity by absorbing many
of the direct effects of the downturn; / 3
but which maintained a modest domestic Budget surplus of the
order of $ 200 million, co i-ined with he maintenance cf a
money supply ' target growth in the range of 9-11%. To have
required a larger domrestic surplus would have compounded the
difficulties being faced by Australian families and Australian
businesses; to have gone to a significant domestic deficit,
as advocated by Labor, would have fueled inflation and put
further pressure on interest rates. That would have involved
a reversal of our basic strategy, and an acceptance of the
destructive socialist policies still advocated by Mr Hayden,
despite all the evidence including the recent experience
of France that they just don't work.
To put the Budget into a correct perspective it is important
to view it in both an historical and an international context.
The overall deficit implied by a $ 200 million domestic surplus
is some $ 1,700 million, just on 1% of GDP. In relation to
GDP this is a deficit about one-fifth of that at at the end
of Labor's disastrous three years in office, and less than
one-third of current deficit levels in the United States,
in the United Kingdom, in Japan, in France, in Canada, and
in West Germany. Our consistent deficit reductions in
earlier years have put Australia in an enormously strong and
fortunate position, by giving us some room to manoeuvre
responsibly in this year's difficult circumstances, if the
US was moving towards a Budget deficit of just 1% of GDP,
who would doubt that world recovery was on the way? But
the Government is determined to maintain the Budget deficit
at the lowest levels in relation to GDP consistent with
dealing with new economic circumstances, in a balanced
manner, as they emerge.
With a surplus on domestic transactions, the Budget will
not add to liquidity in the economy, to inflationary pressures
or to pressures on interest rates; and together with the
maintenance of a firm approach to monetary management, including
use of the new elements of flexibility to financial management
decided at the June Loan Council, it sustains our strategy
of responsible but responsive economic management. The
Budget's greatest strength is that within this overall
strategy it gives substantial help to Australia's families
and needy sectors of the community, while also providing
a basis on which to expect a real measure of wage restraint.
All taxpayers will benefit significantly from changes in the
personal income tax rate scale, including a reduction in the
standard rate of 30 cents in the dollar, and adjustments
to important thresholds, which will cost almost $ 1,500 million
this financial year. Those who are buying or planning to buy
homes will benefit from the general tax rebate on mortgage
interest payments, and from the request we have made to the
reserve bank for a 1% SRD release for lending for housing
purposes. And there are further benefits directed specifically
at families, especially single-income and low-income families;
through an increase in the family allowance for the first
and second child; through the $ 200 addition to dependent
rebates where there are dependant children; and through the
new income supplement available to low-income families. / 4
-4-
Young people have also beensignificant beneficiaries from
tphroeg rBaumdsg, e t* an dt lioroulrd gehm tphleo ymCoemnmt onawneda ltrtahi'nsi negd ucparotgiro'anm sa. s sisFtroamnce
the beginning of 1983, all student allowances
are being substantially increased, in some cases by as
much as 20%; and the family income means tests applying to both
secondary and tertiary' education allowances are to be considerably
eased. The secondary allowance scheme designed to help children
from families with mQdest incomes to complete the final two
years of schooling and hence to acquire vital skills and
expanded opportunities, has been given particular emphasis,
S. A. S. living allowances have been increased by 20%, and the
family income means test levels have been increased by some 44%
to the substantially more generous levels that apply to the
Tertiary Fducation Allowance Scheme. Assistance to T. A. F. E.
and to school-to-work transition programs is also being considerably
increased in line with the Government's recognition of the
importance of the acquisition of education and skills which
equip young people for the needs of today's labor markets.
Expenditure on employment and training programs particularly
those which assist the young unemployed, is to increase by 21%
to $ 250 million, and will provide assistance to an estimated
252,000 people. Under these programs, increased expenditure on
assistance for work experience will allow 74,000 new placements
in 1982-83, and increases of up to 36% in the rate of subsidy
to employers, while significant increases in outlays on the
C. R. A. F. T. -scheme will encourage and enable employers to receive
assistance for some 111,000 apprentices in 1982-83, an.. increase
on the record 99,000 in 1981-82
Additional assistance to businesses through the Budget comes
in variety of forms, both direct and indirect; and this year,
for the first time, direct Budget outlays on industry assistance
and development will exceed $ 1,000 million.
The Budget builds on the package of measures announced on
19 July, designed to support the efforts of Australian industry
to restore its competitiveness especially through more generous
depreciation provisions.
Among the tax reforms in the Budget, there is a furthe--
increase from 70% to 80% in the retention allowance for
private companies, which will give a full year benefit of
million to small business, and fulfill a 1980 election
commitment. The Government also proposes to introduce measures
to allow losses suffered by one company in h group to be offset
against taxable income of other companies in the group,
provided the group satisfied a 100% common ownership requirement,
thus removing a disadvantage of company groups vis-a-vis
integrated companies.
Moreover, the general tax rebate for housing introduced in
the Budget should provide stimulus to the building industry
and related manufacturers, while the personal tax reductions
will generate increased spending and activity across-the-board.
Business will also benefit from the stimulus to activity
and employment that will flow from the substantial increase
in Commonwealth capital works spending and grants for capital
purposes, including a 68% increase in the Budget financed civil
work3 program.
In addition to substantial amounts to be spent on airport
development, aged and disabled person accommodation, and. through
grants to the States for spending on welfare housing and the
normal roads program, the government has introduced the new
Australian Bicentennial Road Development Program. Through
its contribution to improving Australia's transport and
communications system, this program will benefit all
industries in the long term as well as giving an immediate
boost to the corstruction industry. The program will enable
the completion of a national road system of acceptable
standards by 1988 as well as facilitating improvements in
urban and rural arterial roads and local roads. It will be
funded from a special surcharge on the petrol and diesel excise
and including the $ 150 million to be spent in 1982-83 is
expected to involve a total expenditure of about $ 2.5 billion
over 6 years. It is worth noting that the better road system
that will result from this program, together with the removal of
exemptions from excise on diesel fuel for railways under the
new rebate system for certain off-road users of distillate,
will offer a more equal basis for competition between road
transport and railways.
Other innovations contained in the Budget of interest to
business include the new tax relief on dividend income
which will provide a rebate at the standard tax rate for up
to $ 1000 of dividend income at a cost of $ 75 million in a
full year. This measure will give encouragement to investors,
particularly small investors, and should assist business to
raise the funds it needs to build for the future.
Particularly in the light of widespread representations from
industry, we have also decided to provide an incentive to
employee share participation schemes, by freeing from tax
benefits arising from the price at which shares are issued
under approved schemes. The Government believes that this
concession will allow the development of schemes that will
create among employees a greater feeling bf sharing in the
fortune of companies that employ them, and that it will provide
benefits to productivity and industrial relations.
There is no doubt that this Budget has improved the position
of Australia's families substantially; no doubt that it has
improved the position of needy groups in the community
substantially; no doubt that the higher deficit which would
have been necessary to allow for greater benefits would have
threatened the very foundations of Australia's future economic
strength. This Budget provides an opportunity which Australia simply cannot
afford to miss for coniunity-wide support of wage restraint and
co-operation. The kind of co-operation which Australia needs
today cannot be achieved by Governments alone. It cannot be
imposed as a matter of Government policy. The Government has
done what it can in giving a lead, and providing a basis for
co-operation to prevent any new wage-push and I believe the
community will want all responsible groups to heed the Government's
call to work together. / 6
-6-
Even before the Budget was brought down, there was
growing support for the sort of moderation in wage increases
that is so important to Australia's economic and social future.
The Tripartite Conference between the ACTU, the CAI and the
Government showed an important degree of agreement that
excessive wage increases would throw people out of work,-
and in more recent times, both the President and the Secretary
of the ACTU have spoken out strongly in favour of wage
moderation. Moreover, following the Remuneration Tribunal's recommendation of
salary increases well below the inflation rate for parliamentarians
and senior public servants, recommendations which the Government
accepted, the Academic Salaries Tribunal made similar recorrrendations;
and some leading companies have announced a freeze
on salaries, or very sm. all increases.
Because of my belief in the critical importance of wage moderation,
especially at this time, I took the opportunity to write to a
number of companies, to State Premiers and to the ACTU and the
CAI, to explain the nature of those decisions, and to seek their
support for them in their own decisions.
The example that had already been established in this way offered
a basis for some optimism that restraint might be widely achieved
and the decisions made in the Budget give all the more reason
to ask for and expect that responsible wage decisions will occur
throughout the workforce. Equally important to Australia's
future is stability and co-operation in the area of industrial
relations. Since February of this year, we have experienced a
significant reduction in the unacceptably high and damaging
levels of industrial disputation which were experienced through
the second half of 1981.
And a significant example of co-operation between unions,
management and Governments has been provided by the agreement
reached, based on the Crawford Report, to make shipping flow more
smoothly through our ports. Governments themselves, State and
Federal, equally need to co-operate and to face
difficulties together. And the recent discussions between the
Federal Government, the Governments of NSW and Queensland and
the coal industry, to solve the problems that have plagued
one of our great export industries, has shown what can be
achieved when common interests are recognised and pursued.
If we can all work together, if we recognise the benefits which
flow to usiall from reasoned discussicn rather tbvi conflict about the
claims of different groups then, but only then, will we
put ourselves in a position to take advantage of all the
Sopportunities and strengths that Australia possesses. Then, but
only then, will we be able to keep building Australia up.
.77.7*