I J,, AUSTRALIAL
PRIME MINISTER
CHECK AGAINST DELIVERY EMBARGOED 9.30 P. M.
SPEECH1 BY THE PRIME MINISTER
MTIA DINNER 24 OCTOBER
It was with great pleasure that I accepted your
invitaton to join-you tonight.
Your Association has for many years been a vigorous
and influential voice on the issues of principal relevance
to the economic management of this country.
For a long time, and I notice Mr Dixon reiterated
this this morning, you have stressed the need for a strong,
viable and competitive manufacturing sector as being
essential to the restoration of balanced and sustained
economic growth. I agree.
I also noticed that Mr Dixon identified a range of
issues that are currently the subject of consultation
between the MTIA and federal and state governments.
These issues involved government purchasing,
defence offsets, tariff phase-downs, imports from developing
countries, the prevalence of dumping, anomalies in the CER
Agreement with New Zealand, the question of non-tariff
barriers and the influence of the exchange rate.
MTIA' s views on these important issues have been
appreciated and have been or are being taken into account in
the Government's deliberations on these matters.
Throughout, these consultations have been inspired
by a common belief in the need for Government and industry
to work together to ensure that the conditions necessary to
the maintenance and development of Australian manufacturing
industry are firmly established.
In its fundamentals this means we all share an
interest in securing the right conditions for durable
economic recovery.
My Govenment's economic and industry policies are
directed to this end.
The Australian economy took a severe battering over
1982 and into the early part of 1983.
Inflation eroded our international competitiveness.
Drought depressed rural incomes and the incomes of
industries servicing the rural sector.
World recession cut back export markets and saw
reduced resource-based and related investment.*
Cost increases were coupled with declining demand
and business profitability-fell.
High interest rates increased the cost of serviq; ing
debt and discouraged investment.
The manufacturing sector was particularly hard hit
by these developments. Investment in the manufacturing sector fell 31 per
cent during 1982-83 and is expected to continue to fall.
Employment in manufacturing fell seven and a half
per cent oVer the same period.
Further, in 1982, manufacturing output declined * to
historically low levels.
The position since the end of 1982 has been rather
mixed, though there are hopeful signs for the future.
Output in manufacturing remains at a low level, but
there is evidence that it may have begun to rise again over
a significant proportion of the sector.
Employment levels have fluctuated, but again there
are definite signs of an upward trend in the economy as a
whole. Inflation has moderated and average wages have
changed little. Consumer spending has been weak though again most
recent indicators suggest some improvement is underway.
Business investment remains depressed, but housing
starts have risen substantially, lending for housing has
increased strongly and interest rates have dropped.
You would all appreciate that it is notoriously
difficult to predict turning points in an economic cycle.
It is now generally accepted nonetheless that
economic activity, while patchy, has begun to pick up and is
expected to recover strongly over the course of 1983-84.
Strong pressure for growth over this period is
coming from:
The ending of the drought:
indeed, prospects are for a record wheat harvest,
which will contribute significantly to recovery in
rural production, incomes and spending;
? The faster pace of world economic activity, patticularly
in the United States and the associated lift in demand
for our exports and in the prices which we recei ve for
them; The fact that business simply cannot indefinitely
deplete inventories at the rates experienced recently;
The steady increase in investor and consumer confidence
since my Government assumed office.
Tlie Economic Summit provided the broad-based
community involvement necessary to ensure problems were
properly identified and policy responses developed were
appropriate to the needs of our society.
Since then, in the May Economic Statement and in
the 1983/ 84 Budget, my Government has provided controlled,
responsible fiscal stimulus backed by anti-inflationary
monetary and prices and incomes policies.
We have placed a floor under domestic activity
while private demand is weak.
Our policies see Australia well placed to
capitalise on the recovery now underway both internationally
and domestically. On the forecasts presently available to the
Government, economic growth is expected to strengthen
progressively through the course of 1983-84 and to yield a
rise in real non-farm~ production through the period in the
order of 5 per cent.
Employment is likely to respond more slowly,
however. Initially most of the increased production is
likely to be achieved by making fuller use of the time of
existing workers and improved labour productivity, but
employment growth is expected to accelerate as the year
progresses to give a rise of one and a half per cent over
the period as a whole.
The September employment figures bear out this
expectation. Growth is occurring in the context of lower
inflation than has been experienced over recent times.
Indeed, reflecting the beneficial impact on the CPI
of the introduction of medicare, wages may grow through the
course of 1984 at rates not much different to those of our
major trading partners.
Such an. outcome is a good start to restoring
However, it would not of itself be sufficient tq
ensure a durable recovery.
Australia's openness to the world's financial and
trading markets enables us to participate in the benefits
which flow from access to world-wide markets and the
attendant gains from greater specialisation in production
and exchange. We enjoy, as a consequence, higher real living
standards 1 han would otherwise be within our reach.
However, it also leaves us open, to some extent, to
the world's economic cycle.
The United States is in a strong recovery phase at
present, having posted very rapid growth in its domestic
production in each quarter of this year to date.
other major economies including the United Kingdom,
Germany and Japan have also picked up, albeit more slowly.
Sentiment is firming that this is the beginning of
a durable recovery in world activity levels, the major
reservation being some concern about the potential level of
world interest rates.
Were the expected world recovery to falter, our own
growth performance would necessarly be affected.
The task which my Government has set itself is to
maximise Australia's potential to participate in the world's
economic recovery and to ensure that growth is sustained
from within our economy and, most especially, from within
the private sector of our economy as well as from external
sources. While relevant to the immediate needs of the
nation, therefore, our policies are also firmly set within a
medium term context.
We eschew the discredited and simplistic ' fight
inflation first' strategy of our predecessors.
Yet we nonetheless realise that control of
inflation is one of the factors vital to our long term
recovery. Inflation abatement will help to preserve our
international competitiveness, wind back inflationary
expectations and moderate expenditure, thus discouraging
pressures on interest rates.
h ' errd-our etthrir'' ah .-e~ cydateq ji-. r~ td,* 7ltie
are being administered fle-xibly, bearing-in muind the need-to
support private sector activity while not accommodating
avoidable inflationary pressures.
Our overall stance is one directed at improving
Australia's competitiveness over the medium and longer term.
Short-term changes in international conditions may
force fluctations in our competitiveness.
Producers should take some comfort, however, from
our commitment to continue fighting inflation and
unemployment at the same time.
This means we will avoid holding the exchange rate
at artificially high levels.
We aim to see monetary growth at a level consistent
with ensuring that it is neither financing avoidable
inflation, nor restraining feasible non-inflationary growth.
These policies support, and in turn are supported
by our prices and incomes policy.
That policy, which has received wide support,
underlines the need both for incomes restraint and for it to
be exercised universally.
The recent National Wage Case decision struck the
necessary balance between short and longer term economic and
industrial relations considerations.
The Commission's firm stance is what is needed at
this stage and the Government will continue to lend its
weight to the task of ensuring compliance with its
principles. The Government will not stand idly by in the face
of some recent threats to this system.
The Government strongly believes that the new
system of centralised wage fixation provides a firmer basis
for a more rapid economic recovery without accelerating
inflation than would b~ e possible under any alternative
system. Your industry perhaps more than any other would
well understand the potential economic vandalism inherent in
the alternative philosophy, touted in some quarters, of
allowing wages to be determined by the free play of market
fo rc es.. The adv. antages of two years of-real wage stability
and industrial peace -within the new system are so great that
there is a real national interest involved in seeing the,
system work. It is also our announced intention to curtail the
current level of direct Government stimulus to the economy
as private sector activity picks up.
Not to do so would risk unnecessary competition for
resources, especially on financial markets.
OfC course, reducing that stimulus will not be easy.
In our first Budget we nonetheless managed to cut
more than half a billion dollars from the prospective
deficit which we inherited.
We did this while making some progress in
reordering budgetary priorities, including measures to
improve the welfare of the genuinely needy.
In future Budgets we will continue to sustain, and,
to the extent appropriate, extend that reordering.
However, we will do so within the context of firm
overall control over expenditure.
An overriding major concern in this endeavour will
be to achieve greater fairness and equity in our tax and
welfare systems. We want to ensure that the benefits of economic
growth and recovery are passed on equitably through the
Austral ian community.
A start was made in our last Budget and in the May
Statement, including in respect of asset testing of
pensions, revisions to housing assistance arrangements and
lump sum superannuation payments.
For the most part the essentkial fairness of the
proposed changes has been widely recognised, especially as
the Government has indicated its willingness to consult with
those affected and to, make such changes as might be
necessary to remedy unintended side-effects.
The basic fact facing social welfare policy-makers
today is that if the Government is to raise significantly
the general level of benefits to all who need them, then the
special and unnecessary privileges of some must be reduced.
Demographic trends underline this inescapable
reality.-The number of Australian's dependent on a pension
as a proportion of those in the work force is growing and
going to continue growing fifty years from now the number
of working age Australians for each person over 65 will drop
to about three : approximately half the present number.
Further the long-term and desirable trend is
towards a more mobile labour force.
These realities must be accommodated.
They find a particular application in the present
debate about lump-sum superannuation.
My Government shares and would want to encourage
the view that individuals should make provision for their
retirement income.
But the Government also strongly believes that
remuneration in the form of a superannuation lump sum should
be taxed on a * basis which is consistent with other forms of
remuneration. There is no inconsistency in this.
Unless this is done, others will have to bear
greater burdens in order to ensure that essential revenue is
maintained. There is nothing draconian about the measures we
have taken. For the most part, tax is not paid when money goes
into a superannuation fund nor is the investment income
earned by the fund on such money taxed.
Rather tax is deferred until the benefits are paid
out of the fund.
This leaves larger amounts accurnulatinq in the fund
and brings in larger amounts of fund earni ngs which
ultimately emerge as larger benefits than can be obtained
through other forms of1 saving.
More specific recommendations by the Commonwealth
task force on occupational superannuation are also receiving
careful consideration. We have already acted to implement app'roved deposit
funds as a means of facilitating preservation of
superannuation entitlements and are looking at recommended
improvements in-the'vestinig, preservation and portability of
supe-rannuation benefits.
We appreciate that further changes in this area
could have a major impact on existing superannuation funds.
It is important therefore that industry
representatives as well as the ACTU play a major role as the
Government explores possible options in this area.
Mr Wills,
Crucial to Australia's long-term economic outlook*
must be the maintenance of an efficient, highly competitive
manufacturing sector.
My Government is'dedicated to establishing
conditions that would see enhanced efficiency in Australian
industry. Unless investment in industry is stepped up and
productivity increased Australia's future economic prospects
must be bleak.. The restoration of non-inflationary growth in the
economy should materially improve the outlook for the
manufacturing sector.
This is particularly the case for the metals
products group with its heavy dependence on investment and
consumer durables demand.
But although a revival in the general level of
economic activity is obviously crucial to improved
manufacturing performance, it will not by itself solve the
sector's deep-seated problems.
The achievement of increased competitiveness in the
longer-term, and the associated enhancement of profitability
and employment, will necessitate high levels of investment,
the application of new technology to production processes,
and an increasing export orientation, over large areas of
manufacturing industry.
The effectiveness with which we apply new
technology will deter-mine not only the efficiency of our
industry, its competitive performance and its capacity to
grow, but also whether we can reverse the deterioration in
our living standards.
While cyclical factors explain part of the
manufacturing sector's current difficulties, a large
component is structural and reflects the entrenchment of low
productivity and inappropriate production patterns in many
industries.. For thjs: reason, t'he -d-evelopm-ent -and -appl. ication oEf
new technology must-be embraced as one of our driving
forces. 1 There is, whether we like it or not, no escaping
the fact that innovation is essential to our nation's future
well-being, not only in industries producing new products,
* but also throughout established industries, such as the
metals products group.
Other countries, particularly in our own region,
are actively seizing new technology opportunities.
If we are to benefit fully from our location in
this dynamic growth region, it is incumbent upon us to
develop and adopt new technologies new products and
processes. I
There will undoubtedly be problems adjusting to the
changes involved. Consultation with those affected will be necessary.
Particular attention will have to be paid to their
needs. But the long-term interests of all Australians
dictates that we venture upon an adaptive course.
We must pursue positive, forward-looking policies,
rather than the negative, re-active ones that have so often
characterised our response to the challenge of change in the
past. My Gove rnment has announced specific measures to
assist the development of new industries, including to
remedy deficiencies in the availability of venture capital.
The steel industry assistance package stands as a
model for the manner in which it balances employment
considerations with recognition of the need for workers and
business in that industry to enhance its competitive
position through investment and through applying advanced
technologies.
f We have similarly announced the establishment of
the car industry council which will look at ways of
increasing the industry's efficiency and productivity with
the aim of improving our competitiveness on both domestic
and export markets.
In summary, therefore, my Government's policies
provide a coherent and comprehensive framework within which
the Australian economy can go forward with confidence.
There are very enc ouraging signs-of recovery in
domestic economic activity, which these policies are
des-igned to nurture,. strengthen-and broaden.-
It will be for each of us, however, to accept ovir
share of the responsibility to take Australia forward and to
make the most, collectively, of the opportunities which are
open to us.