EMBARGOED UNTIL DELIVERY ACHECK AGAINST DELIVERY
PRIME MINISTER
SPEECH BY THE PRIME MINISTER
AUSTRALIAN MINING INDUSTRY COUNCIL ANNUAL DINNER
CANBERRA 2 MAY 1984
Distinguished Guests, Ladies and Gentlemen
I particularly appreciate the opportunity to join you this
evening. I think you will all agree we are in the midst of a very
important phase in Australia's economic development.
1983 was the year in which economic recovery began
in which significant inroads were made into
unemployment and employment rebounded from the
depths of recession;
in which the inflation rate was significantly
reduced; in which a number of measured steps were taken to
begin the process of structural adjustment and to
improve the flexibility of the Australian economy.
1981' was also the year in which Australia gave itself a new
deal in industrial relations and benefitted greatly from the
consequent decline in the incidence of industrial
disputation. I appreciate that not all sectors have as yet been able to
participate fully in the general economic upturn.
For some segments of the mining industry, in particular, the
outlook is not as encouraging as for other sectors in the
economy. A variety of factors contribute to this rather
unique situation of some parts of the mining industry.
A major factor is that one would normally expect some
slowing as the several large resource projects undertaken
over the past few years come to fruition.
Those projects had a genesis in an economic climate, and the
associated perceptions of the future, which is quite
different to what we are experiencing today.
A particular feature of that climate was a view that the
1980' s and 1990' s would be marked by the levels of supply
and demand for energy resources which were experienced in
the 19701s.
For a number of reasons that expectation has not been
realised. These include that energy conservation and the pattern of
substitution between energy sources has turned out to be
less favourable to Australian producers than then thought.
At the same time there has been a substantial decline in
demand resulting from the global recession from which the
industralised countries are now emerging.
These factors have resulted in a difficult trading
environment and have contributed to a squeeze on volume and
value of sales, and hence profitability. Recovery from this
situation will be governed both by the pace at which sales
pick up and by improvements in the competitiveness of the
industry. Both the domestic macro-economic outlook and the prospects
for the international economy suggest,, however, that in the
longer term, the Australian mining industry can anticipate a
better operating environment.
Central to this view is that, nationally, conditions are now
in place on which to build sound economic recovery with
improved profitability, employment, and living standards.
A key of Labor's economic policy approach and critical to
its success is the Prices and Incomes Accord.
The Accord has ushered in a new era of better industrial
relations and a new approach to economic management in
Australia. Despite a strong upturn in economic activity, the number of
working days lost due to industrial disputes in Australia in
1983 was the lowest since 1967.
As you would all know Award wages have grown in line with
half-yearly indexation arrangements with very little
movement outside of that. 3
award waqyes grew by only 4, per cent in 1983,
compared to 11 1/ 4 per cen~ in 1982
Individual unions have made public commitments to the
Arbitration Commission and indirectly to the Australian
people not to seek extra-indexation payments.
And, overwhelmingly, these undertakings have been honoured.
Under the terms of the Accord, wages growth over the next
twelve months will be low by international standards:
The March quarter CPI, just released, has shown a
fall of a striking 0.4 per cent, the lowest outcome
in 30 years.
This movement, of course, reflects the impact of Medicare on
the price to consumers of medical and hospital services.
But not just the Medicare effect. Excluding the hospital
and medical services component, the CPI rose only 1.2 per
cent in the March quarter
Half the rise of the December quarter; and almost a
percentage point less than the rise of the 1983
March quarter
This is the lowest rise in the overall CPI in six years; and
provides further testimony of the moderation of inflation
which our policies have brought under the terms of the
Accord. This, together with signs of some renewed inflationary
pressures among our competitors, has substantially improved
Australia's competitive position.
I would add in this regard that it is now likely that award
wages growth over the course of 1984 could be as low as
per cent.
Indeed it is notable that by the second half of 1983 the
non-farm profit share of GDP had risen to 15.4 per cent, the
highe, st level since the second half of 1973. At the same
time'the wage share had fallen to 63 per cent, the lowest
level since the second half of 1970.
Under the current indexation arrangements and a climate of
broad adherance to the Commission's rulings, a further
decline in real unit labour costs and an increase in
corporate profits can reasonably be expected for the rest of
1983/ 84 and through into 1984/ 85.
This will provide our industries with a valuable competitive
fillip at a time when international inflation is likely to
be picking up.
The decline . in Iinflation has also been reflected in a
general downward trend in most long-term interest rates
since mid 1982.
Share market prices have also reflected the long-term
improvement in business conditions.
These developments have significantly facilitated the
servicing of debt and have improved the climate for
refinancing. In the context of the scope for non-inflationary
expansionary policies which the Accord had established, the
Budget in 1983-84 provided stimulus to the economy at a time
when private sector demands were weak.
In this regard the 1983-84 Budget is recognised as having
been outstandingly successful. It struck the right balance.
Furthermore the 1983-84 Budget deficit is s3till on target
an achievement our predecessors were incapable of
delivering. Our aim in the 1984-85 Budget will be to maintain and
broaden the recovery that is now underway. We will again
strike the balance which is right for 1984-85.
While it is not possible to be precise about numbers at this
stage, the Government's aim is to reduce significantly the
deficit in 1984-85. What we wish to achieve is a
significant reduction in the share of the Commonwealth
deficit as a percentage of GDP. We expect to do this while
also achieving some significant alleviation of the personal
income tax burden on lower and middle income groups.
Such a reduction in the demands made by the public sector on
financial narkets is the responsible course given that the
economy is now growing again and that there is some evidence
that the private sector's demand for funds is picking up.
The actual deficit will need to have regard for balance in
the pursuit of our objectives. These include a. wish not to
put undue pressures throu gh the financial markets on
intergst rates or on the exchange rate. As a Government we
have'been and will remain very mindful of the relevance of
such factors for the profitability and competitiveness of
Australian industry. We would, nevertheless, be
irresponsible to cut spending programs so sharply as to
undermine or put at risk the recovery in domestic demand and
profitability, and the viability of the Accord.
The prospect next year is for declining, not rising domestic
pressures on interest rates and the exchange rate. These
prospects will provide substantial benefits to the mining
industry.
-1 woul~ d add tha~ t t-he--decisl6n taken last year flb float the
dollar was enthusiastically greeted by exporters, including
many of you here this evening.
It was acknowledged to be a sound and rational move.
The exchange rate will no longer be artificially manipulated
by non-participants attempting to second guess the market.
The exchange rate is now attuned to market: realities.
In respect of home markets it is clear that 1984 will
continue to be a good year for Australian industry
generally, which will also go some way towards improving
prospects for the mining industry.
Both the housing industry and consumer spending seem set to
remain strong in 1984.
These developments, the likely rebuilding of stocks, and the
pickup in the general level of domestic manufacturing
activity provide a firm base for an expansion of domestic
demand for metals and metal products.
We are aware that a pick-up in business investment is
necessary if we are to have sustained economic growth. But
we recognise that decisions about the timing and volume of
investment are of course for business to make in the light
of commercial judgement.
The Government also recognises that the readiness of firms
to undertake investment normally emerges at the later stages
of the recovery cycle.
What we contend is that the Government has put in place the
macroeconomic policies which are producing an environment
increasingly conducive to renewed business investment.
I appreciate that while there are indications that 1984-85
will be a better year for business investment than 1983-84-
and the The Government considers it important that it
should be this will not be the case in many segments of
the mining industry.
As I'iientioned earlier there are forces at work unique to
the industry affecting the supply of and demand for many
minerals, which are a deterrent to renewed growth in some
areas.
But at the same time it is encouraging that prospects for
world recovery into 1984 and beyond are good.
The United States' economy, which has become the fundamental
engine of growth in this upturn, has grown vigorously during
1983 and into the early months of 1984.
Current . foreoasts by world agencies have coh รต 6r~ a't'vely put
United States growth in 1984 at around 5 per cent.
The Japanese economy is also exhibiting encouraging signs of
growth, with a forecast for growth of 4.1 per cent in fiscal
1984. The international recovery remains rather narrowly based in
other industrialised countries, but the signs of pick-up are
unmistakable. Economic activity in the newly industrialising econom ies of
East and South East Asia, continues to be strong.
To date, the world recovery has been achieved without a
resurgence of inflation.
Fears have been expressed, however, that the US recovery may
be too rapid. This may, subject to the stance of US
monetary policy, fuel higher inflation as time progresses.
Some may see short-term advantage in such a prospect.
To date, the pick-up in world activity has had only a patchy
impact on the demand for our major mineral exports and the
prices which are paid for them.
Faster recovery abroad and faster inflation abroad will tend
to benefit both Australia's competitive position, and the
profitability and volume of our exports in the short run.
But the price which the economy would pay in the long-term
would be an international recovery which is short lived and,
therefore, a renewed downturn in our trading prospects.
But it would be wise not to be unduly pessimistic.
In calender 1983 the volume of our non-rural exports rose
rapidly by about 11 per cent.
This growth was broadly based, reflecting a rise in Japanese
purchpses of iron ore and coking coal; increased exports of
gas;' and strong growth in manufactured exports.
The current situation facing Australian coal exporters
merits particular comment.
The long-term electricity supply plans of our trading
partners Japan and Korea, point to significant prospects for
future exports of Australian steaming coal.
Of course, I am not suggesting that we are assured of future
expansion of these exports. The current oversupply
situation, bilateral trade pressures and policies directed
. at -diver~ i f-ication of snurces 6f sdpply ' Must't~ mpgr thi's
assessment. Nevertheless current trade forecasts suggest
that we could double or even treble our steaming coal
exports by 1990.
These projections atand even in circumstances where there
has been a lower than expected growth in power demand in
recent years and a consequential slowing of the rate at
which steaming coal is being substituted for oil.
The outlook for coking coal is less clear. While our
exports are growing and record export tonnages are likely
for 1983-84, future sales contracts with Japan remain
uncertain. Total exports by 1990 may only increase
marginally from their current levels.
There is no question that price cuts and tonnage reductions
in the Japanese market will increase pressures upon the
local industry. We are indeed aware that a critical stage
has been reached in the coal industry's development and we
have made it the focus of several important policy
initiatives. Since assuming office we have implemented an export control
administration which is directed to the optimisation of our
market strength by unifying our selling position. In this
endeavour we have sought to work closely with the industry
to reach broad agreement on market strategies.
We are now examining ways in which this process could be
improved. It has been with reluctance that the Government today
approved pricing proposals submitted by the Australian
industry for the sale of hard coking coal to Japan.
As the Minister for Trade Mr Bowen said earlier today, the
Government was very concerned that the Australian
negotiating position had been undermined by some companies
having agreed to price cuts, and indicating their intention
to abandon agreed parameters and settle without Government
approval. Thereafter, as Mr Bowen has said, the negotiating
position of the remaining Australian companies collapsed.
it be~ ame untenable for the Australian Government, in these
circuimstances, to expect any revision of the pricing
arrangements imposed by the Japanese mills.
Future prospects of the iron ore industry are interwoven
with those of coking coal.
Although some predicted that the international situation
would not improve until 1986, there are now signs which are
more encouraging. 1984 Japanese steel production estimates
are up to 104 million tonnes. This, together with the
recovery in the domestic steel industry, should be
encouraging news for iron ore producers f or 1984.
In addition, we have the potential to expand into other
markets in Asia. Sales to China and Taiwan in 1983 enabled
us to make up the shortfall in exports to Japan. Along with
Korea, these countries offer scope for export growth in
future years.
However, the Government is not simply waiting for an upturn
in the trade cycle to provide a panacea for the ills of the
mining industry. We have taken positive measures in the
search for new market opportunities and to address
structural problems in the industry.
We are now reviewing in consultation with the New South
Wales Government, the operations of the Joint Coal Board to
see how it can be improved.
We have also established the Australian Coal Consultative
Council in order to improve the ongoing dia]. ogue between
management, unions and Government.
Similarly we have encouraged the creation of' an Iron Ore
Consultative Council. This represents a very positive step
towards fostering a spirit of consultation and co-operation.
More broadly based and necessary consultations are also
being encouraged. I appreciate, for example, the concern of
the mining industry to be fully consulted on any legislation
proposed by the Government on aboriginal land rights. For
reasons such as this the Minister for Aboriginal Affairs is
seeking to establish a Forum through which the relevant
concerns of aborigines and the mining industry can be raised
and considered in detail.
Our program of assistance to the steel industry has also
provided tangible benefits to the iron ore industry.
The measures taken should lead to a steel industry which is
well placed to take advantage of new opportunities. They
will a~ lso contribute to the continued viability of the iron
ore Industry.
The joint initiative for iron and steel co-operation with
China will also contribute to maintenance of a viable and
competitive Australian steel industry.
This is a most important initiative.
The Joint Study Group, the establishment of which was agreed
between Premier Zhao and myself in February, met formally in
Beijing a couple of weeks ago. Concrete possibilities were
identified and discussed in each of the areas that Premier
Zhao and I had considered.
Simultaneously Australia's private corporations with whom
the ultimate commercial decisions on trade and investment
will rest have been engaged in detailed discussions of
specific commercial opportunities in this area. CRA, under
Sir Roderick Carnegie, has already discussed a range of
concrete proposals for co-operation in iron and steel. As
well, delegations from BHP's minerals and steel divisions
have visited China recently to discuss a number of
substantial proposals.
This considerable level of activity will shortly be
complemented by the visit to Australia, starting on 10 May,
of the Chinese Minister for Metallurgy. He will familiarise
himself with the Australian iron and steel industry, advance
discussions with Australian companies and hold further
discussions with the Australian Government.
In short, there has already been very considerable progress
with this major development in co-operative relations
between Australia and China. The Government will continue
to pursue its interest in ensuring a satisfactory framework
within which Australian industry might secure the very real
opportunities which exist.
It is, as I have said, for the companies concerned to make
the necessary decisions. I am confident, nevertheless, that
with the continued co-operation of all parties quite
substantial benefits will be realized by all concerned.
Distinguished Guests, Ladies and Gentlemen,
My Government recognises the vital role which the private
sector has to play in securing Australia's economic future.
Our policies are framed to provide an environment conducive
to private sector recovery.
Macroeconomic policy is supporting domestic demand in the
short,-term, while putting the maximum feasible restraint on
domestic costs. These are creating the conditions for
durable recovery in the private sector. The Government aims
to remove distortions in the Australian economy wherever
possible and thus improve our ability to compete in world
markets into the future. Our initiatives are measured and
realistic. They are being developed in consultation with
the business community and the trade unions.
They require the co-operation of all parties to be
successful and I have no doubt that they will continue to
receive broad support.
The final message which I wish to convey to you this evening
is the firm confidence I hold in our future. In saying this
I do not wish to resurrect the damaging " boom" rhetoric of
the previous Government. Nor would I wish to underestimate
the challenges we face; one the Government is particularly
concerned with, for example, is the promotion of necessary
structural change in Australian industry.
My message to you is more specific. It is simply that
despite the short-term problems which still plague the
resources sector including worldwide overcapacity and
depressed prices it is essential that we remain a nation
with an efficient and competitive resources sector.
This is a fundamental factor which will ensure Australia's
underlying strength for the future.