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Transcripts from the Prime Ministers of Australia

Transcript 6346

SPEECH BY THE PRIME MINISTER, INSTITUTE OF DIRECTORS, 15 MARCH 1984

Photo of Hawke, Robert

Hawke, Robert

Period of Service: 11/03/1983 to 20/12/1991

More information about Hawke, Robert on The National Archive website.

Release Date: 15/03/1984

Release Type: Speech

Transcript ID: 6346

CHECK AGAINST DELIVERY A--LEBRODAGAINST DELIVERY
PRIME MINISTER]
SPEECH BY THE PRIME MINISTER
INSTITUTE OF DIRECTORS 15 MARCH 1984
Mr Chairman, Ladies and Gentlemen
It is with particular pleasure that I accepted your
invitation to join you tonight.
At this time of the year the Government is gearing up to
prepare its next Budget. It is therefore timely that we
should review assumptions about the environment within which
the crucial decisions must be framed arid take stock of the
achievements to date.
The record of the past twelve months, I am sure you would
all agree, has been a very good one. The economy is now
demonstrating strong economic growth. Subject to certain
qualifications which I shall address later, the outlook for
the medium and longer-term is encouraging and underpins the
confidence now widely felt throughout the community in our
national economic prospects.
Crucial to an appreciation of those prospects must be an
assessment of the international economic outlook. In the
same way as recovery of the United States' economy
contributed to the turn-around in Australia's economic
fortunes in 1983, continued strong American economic growth
without a resurgence of higher inflation and an increase in
the level of interest rates is important to the maintenance
of Australia's own long-term growth performance.
It is therefore encouraging that the United States economy
is moving into a second year of vigorous expansion. The
U. S. economic indicators are unmistakable: Real GNP in the
US expanded by over 6 per cent during the course ? f 1983
and is expected to grow in real terms by around per cent
in 1984. Capacity utilization in the United States also
increased significantly in 1983, and American business
investment has as well now started to pick up. Total
civilian employment in the U. S. expanded by around 4 millicon
jobs since the trough of the recession in November 1982.

2.
With other countries, the same indicators were less
clear-cut, but there are signs of improvement. Japanese
growth is expected to be stronger this year, while remaining
modest by older historical standards. The European
economies have been sluggish, although I should note that
the Treasurer recently returned from an OECD meeting to
report that the major European economies can be expected to
contribute more in the immediate future to world-wide
economic growth than they have for some time.
Indeed while aggregate GNP in the OECD area is projected by
the OECD to grow by only 3.5 per cent in 1984, this prospect
is more encouraging than it has been for several years.
World trade and activity in less industrialised areas is
also picking up. The OECD estimates that by mid-1985 real
GNP in North America and Japan may be 7 to 9 per cent higher
than two years earlier and in Europe some 3 per cent higher.
The international stimulus to activity is therefore very
real. Some Australian trade and commodity prices are
already benefiting directly from this, although for several
of our major export industries the benefits of international
economic recovery are likely to appear more strongly over
the next year or so than they have to date. The fact that
international recovery is under way without any marked rise
in world inflation is an added bonus.
There are, however, residual concerns in some quarters that
the present international economic recovery might be
short-lived. These doubts reflect concern that the recent
pattern of economic expansion in the United States might not
be sustainable.
In this view the recent spurt in American economic growth
risks rekindling inflationary expectations and putting
upward pressure on interest rates.
Recognition of the risks inherent in this situation
underpinned the recent OJECD Ministerial Conference's quite
decisive reaffirmation of the need to reduce budget
deficits, constrain public sector expenditure ( especially
transfer payments to people able to look after themselves,
and industry subsidies), and to roll back all forms of
protection and other impediments to economic flexibility and
structural change.
Each element in this preferred OECD approach has found a
reflection in the economic strategy of the Australian Labor
Government. The United States recovery has had some important influence
on the recent upturn in Australia's economic performance.
Of greater importance so far has been the remarkable surge
in output and incomes in the farm sector.

3.
The breaking of the drought has seen a major and much needed
recovery in Australia's rural sector. This reflects for the
most part record grain harvests. .1 should note, however,
that livestock sector production is expected to decline-in
1983-84, and that it will take a number of normal seasons
for the sector to recover fully.
That said, farm product in 1983-84 is now expected to
increase in real terms by about 30 per cent compared with
per cent expected at Budget time. This 30 per cent
growth will contribute 1.5 per cent to overall product
growth a substantial contribution to the overall recovery
in the Australian economy.
Australia's economic recovery is not, however, based solely
or even mainly on the upturn in the rural sector. A more
general strengthering has occurred. The 1983 September
quarter National Accounts Statistics show, for example, that
non-farm product rose in real terms by 2.3 per cent in that
quarter. The pattern of the turnaround in the September quarter was
much as expected, though the pace of the improvement was
much stronger than economic forecasters including the
official ones had first thought likely.
The stimulus to growth came from the rebuilding of stocks,
public sector demand, private consumption and dwelling
investment. More recent indicators suggest that this pattern of growth
has continued into the current half year. The stimulus
given to the economy by the Government's budgetary policies
including to the housing sector have been important factors.
The dull spot in the September quarter accounts was the
continued weakness in business fixed investment. This was
expected. As we indicated at Budget time, there would be
little prospect of an improvement in business fixed
investment until the recovery was firmly established.
Indeed, at the time of the Budget we said that a decline in
investment could be expected in 1983-84. The results of the
most recent survey by the statistician of new fixed capital
expenditure by private enterprises do imply, however,
somewhat stronger levels of plant and equipment investment
through the course of the year, with continuing weak
investment in building and structures. On these trends it
would appear that while overall investment may stabilize in
the second half of 1983-84 we cannot be sure the required
recovery in investment will materialise.
When my Government came to office the inflation rate in
Australia was 11.5 per cent. Since then the trend in the
inflation rate has clearly been downward. Over the year to
the December quarter, the inflation rate was 8.6 per cent,
the lowest since the March quarter 1979.

Looking ahead, the introduction of Medicare will have a
significant downward effect on the CPI in the March and June
quarters of 1984. Little change in the CPI is actually
expected in the March quarter and only a mod-est increase is
anticipated in the June quarter.
In these circumstances we can, therefore, expect that
through the rest of this financial year the inflation rate
will drop still further. It needs to Australia's
underlying inflation rate is still well above that of our
major trading partners.
Continuation of the downward trend in inflation will depend
critically upon the course of cost pressures and, in
particular, labour costs. To date these have been very
favourable. The 4.3 per cent national wage increase handed
down on 23 September 1983 has now been implemented and is
reflected in the 7.2 per cent growth in average weekly
earnings, over the year to the December quarter.
Importantly, apart from the growth in award wages, the
increase in earnings mainly reflects compositional and other
influences other than over-award payments.
I am confident adherence to the Prices and Incomes Accord
will contain unit labour costs into the forseeable future.
I say this in full awareness that corporate profits are
returning to more satisfactory levels.
There has also been substantial improvement in the labour
market since the Labor Government took office. In
seasonally adjusied terms, the number of new jobs expanded
by 140,800 ( or 2 2per cent) between the low point in April
1983 and February 1984. The unemployment rate fell in the
same period from 10.3 per cent to 9.4 per cent.
Indeed the outlook for the economy over the rest of 1983-84
is distinctly encouraging.
The signs are that Budget time forecasts for growth in
domestic production and employment will each be
significantly exceeded. Employment has already grown by
more than the Budget time forecast for the whole financial
year. Recent partial indicators of demand all point to a
firmer tone in the last half of 1983 and early 1984. Motor
vehicle registrations, retail sales and building approvals
have all shown strong growth in recent months.
For 1983-84 as a whole, growth looks like being particularly
strong in dwelling construction, public expenditures and
exports. The turnaround in the stock cycle should also
contribute significantly to growth.

Non-farm product also now looks as if it will be 4 per cent
higher this financial year than last, as a result of growth
of around 8 per cent through the financial year. Total
output seems set to rrow by over 10 per cent through the
year so that it is 5 2 per cent higher in 1983-84 than in the
previous financial year.
A particular task in the months ahead is to reduce the size.
of our 1984-85 deficit from the level that was appropriate
for the first year of recovery. Certainly the Government
intends reducing its own borrowing demands in the next
Budget. Obviously, it is a question of degree. We here in Australia
clearly will have to balance what we think are the needs of
the private sector for borrowed funds to sustain and build
on recovery, and the desirability of not cutting back on net.
public spending to such an extent that the recovery peters
out. Equally, we should be aware that the path of continuing
large, fiscal deficits may lead through high interests rates
to a rather higher exchange rate than might otherwise have
been the case.
The exchange rate is now determined by the market and not by
official fiat. The mix of Government policies and
expectations about the Australian economy will still
influence the exchange rate. But if the Government is to
avoid placing upward pressure on interest rates and the
exchange rate it must continue its efforts to reduce the
budget deficit as private sector investment strengthens.
I think it also should be recognised that we have within our
own region within the Asia-Pacific region the
circumstances that will help to sustain strong Australian
economic growth. The economic dynamism of many countries
within the region, coupled with the massive human and
material resource base many of them enjoy, provides an ideal
outlet for Australian trading and economic interests. To
the extent we are successful at " locking into" regional
economic growth patterns, the more we as a nation stand to
gain. The interest that Premier Zhao demonstrated during my recent
visti to China in the integration of the iron and steel
industries of Australia and China through programs of
mutual investment, technical assistance and the supply of
Australian raw materials and semi-processed products to
China's mills is indicative of the scale of possibilities
which exist. Seeking out and developing such possibilities3
is critically important to Australia's long-term economic
well-being.

It is important also that Australia do what it can to
contribute to securing a freer, more open international
trade regime. Conditions conducive to sustained global
trade expansion must be established. They do not exist at
the moment. This recognition lay behind my Bangkok trade
initiative. The approach that initiative suggests is a practical,
workmanlike one suitable both to our purpose and to a
realistic appreciation of how we might most effectively make
progress in this difficult area.
More specifically, through a process of close consultation,
particularly with the countries in our own region, we aim to
get a statement of regional countries' priority interests in
market access onto the table. With such a statement, and in
the context of a new multilateral trade round, regional
countries should be able to secure attention to their
pressing contemporary concerns and revive consideration of
areas previously put aside as exceptions to the general
trading rules. Subsidies and non-tariff barriers to trade
are examples of such exceptions which Australia, for its
part, would want to see more seriously considered.
The support we have received for the approach I have
proposed has been most encouraging. A meeting of senior
officials will soon be held in an Asean country to carry the
exercise forward.
The inevitable corollary to any bid for a more open, freer
international trade regime the benefits of which none
would dispute must be some measure of adjustment in our
domestic economic structure.
It is indisputable that past policies of Government, and
past failures of entrepreneurship, have caused Australia to
miss opportunities and have locked some Australia resources
into relatively unproductive uses.
Sustained long-term economic growth and meeting the economic
and social aspirations of the community require that
Australia's resources be applied to their most productive
uses. Importantly for Australia, this means accepting
gradual structural change and a community willingness to
share its costs equitably.
The Government does not have any monopoly of wisdom in this
area indeed if change of the kind implied is to be handled
successfully it must be based on widespread community
understanding and acceptance of the need for change,
especially in the industries most affected.

The consultatiave procedures my Government has proposed both
at the national and industry level are aimed at securing
such understanding. EPAC's endorsement and development of
this approach earlier this week was an important step
forward. We can, I believe be confident that Australia's
endowments of well educated people, large stocks of capital
from home and abroad, and natural resources, will position
Australia well for strong expansion of industries based on
these endowments.
But as I have repeatedly said before it is not for the
Government to pick " winners and losers". A program of
structural change will and should have as its aim the
creation of opportunities for expansion of our most
productive industries. The detailed structure of Australian
industry will in future be determined by the individual
decisions and performance of Australian enterprises and
their workers. It is for the private sector at this point
in time to move deliberately, in its investment and
rationalisation decisions, to meet the future.
I am sure that, with the process of renewed and sustained
economic growth, the face of Australia industry will change.
Ten years from now we should have more specialised, more
skilled and more internationally competitive industries
producing more goods, employing more people and facing the
future with considerably more confidence than has been
apparent in recent years.
This is our long-term challenge. It is an integral part of
what the Government hopes to achieve through its medium and
long-term economic growth strategies. It is what we look to
Australian industry to achieve.
The main challenge in the immediate future, however, is to
keep the Australian economy moving in the right direction.
This will not be easy, and I have touched on some of the
difficulties. Importantly it will involve maintaining continued progress
in the positive trends in the principal economic indicators
that is, employment and unemployment, economic growth,
inflation, and interest rates. While the international
economic situation does carry some real uncertainties, I am
on balance confident of a continuing, strong Australian
economic performance.
But as I have said in several recent speeches and as Paul
Keating emphasised at Monday's EPAC meeting the private
sector, and more specifically your companies, have a major
role to play in securing this result. Many of the decision
my Government has taken to date have aimed not only at
providing an immediate stimulus to a depressed economy but
also to secure conditions for healthy growth in the private
sector in the longer term. This we regard as crucial to
long-term, sustained economic growth.

We believe that the strong recovery of 1983-84 can be
followed by sustained growth in 1984-85 and beyond, at rates
well above the inadequate performance of the past decade.
As the Treasurer said to EPAC on this will require
strong recovery in private investment to replace the impact
of such one-off factors as the ending of the drought. We
believe this result is possible indeed that it is a
logical response by business to the general improvement in
economic conditions that are now apparent, and which can be
expected to continue for some time.
Already it is clear that the policies the Austr'alian Labor
Government is promoting are contributing to substantially
higher share of profits in total income, lower inflation,
lower unit labour costs, lower interest rates and greater
confidence in the continuity of economic policy. Our
industrial relations policies have produced the lowest level
of disputation for 15 years. I would simply ask when
business has known a better environment within which to
commit its own resources to a renewed round of investment?
Indeed by doing so it will itself be contributing to the
maintenance and enhancement of the very conditions it so
greatly values.
This is not to say the Government wants to retreat from its
responsibilities. It is determined to do its part. If it is possible to do so
within the limits of the overall budgetary situation, we
will lend the Government's full support to the Prices and
Incomes Accord at a time when nominal wage increases are
small, by providing for taxation relief to low and middle
income earners. Above all, we are determined that public
sector demands on financial markets will be reduced as
private investment ' increases, as we believe it should in the
improved economic conditions of next financial year.
With the co-operation of all Australians, whether
individually or collectively, whether in Government or in
business or as workers in the private sector, I am confident
the coming year will see a further building on the
improvements made this year.
The Government for its part will continue working to ensure
an economic climate conducive to expansion by containing
inflation and pressures on capital and labour markets.
As you in business appreciate, sustainable long-term
recovery requires substantial investment outlays by the
private sector. If we are to tackle inflation and
unemployment together if we are to ensure conditions of
long-term economic growth it is vital that business play
its role by raising investment, just as it is vital that the

9.
labour movement play its role by restraining wage claims as
required by the Accord. In this regard we all have
responsibilities. It is in the community's interest, indeed
in Australia's interest, as well as in each of your own
interests, Australians should shoulder these
responsibilities together.

Transcript 6346