PM Transcripts

Transcripts from the Prime Ministers of Australia

Transcript 6611


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: 14/03/1985

Release Type: Speech

Transcript ID: 6611

Since the Labor Government came to office two years ago
committed to relieving this country of deep and
worsening recession, there has been a recognition, both
wi'thin Australia and internationally, of the very
significant success which has attended its management of
the economy. This recognition has been positive and
widespread. It has been reflected in the almost
deafening silence in the last Parliament of our
political opponents in the area of economic debate.
In these past two years we have steadily been
.1 implementing policies directed at restoring economic
growth and moderating inflation, which we have
U describedas fighting unemployment and inflation at the
same time.
And from the beginning we have given equal priority to
the development of pol-icies directed at removing
structural impediments to improving Australia's longterm
growth performance.
The main elements both of our short-term macro-economic
policies and of our long-term growth policies are well
C known to a group like this, and it is not necessary to
Ii traverse in any depth that-old territory.
But it is necessary to say this by way of preface. Our
policies have been successful for two basic reasons.
a One, they have been intrinsically correct, and relevant,
in economic terms. Two, they have been well founded in
a clear understanding of, and a preparedness to work
within, the realities of our economic and industrial
system. Problems will arise because we live and operate in the
complex real world, a world of prejudice, of passion, of
preconceptions and of power power which will not
always be exercised by individuals and groups within the
economic system according to what may be adjudged

impartially to be in the national interest.
That leads me to make this point which I believe is
compellingly true while a Government is entitled to be
questioned, criticised, about the implication of its
policy decisions there is a corresponding obligation to
test alternative policy prescriptions with similar
rigour. To give a specific example, I find it only
slightly less than ludicrous to hear it suggested that
the Government's wage policies are inappropriate because
they will lead to undesirable wage increases. It may be
true that the policies may lead to some wage increases
which from some perspectives are undesirable. What is
absolutely certain is that the muddle-headed
prescriptions of our opponents for the abandonment of
the regulated centralised system in favour of
decentralised bargaining would be a recipe for a
devastating wages explosion. The critics ignore
Q history, they ignore reality.
That said, I want in this real context, to use our time
tonight to discuss some of the major challenges that we
face this year in maintaining the economic recovery
without a resurgence of inflation, and to improving
Australia's long-term growth performance.
Our policies for fighting unemployment and inflation at
the same time have embodied mutually supportive
approaches to fiscal, monetary and wages policy.
Our fiscal policies were initially highly expansionary,
making substantial changes to the direction but only
slightly reducing the magnitude of the fiscal stimulus
implicit in our conservative predecessors' economic
policy U-turn in the nine months before they lost
office. We made it clear in those early days that we
would reduce the budget deficit as private investment
C expanded in the course of economic recovery.
The fiscal expansion of 1983-84 contributed to the
strong recovery that commenced in the September quar: er
of that year. In our second budget, 1984-85, we
provided for. a reduced rate of growth in Government
outlays and a lower budget deficit in money terms, vw* iichn
reduced the Commonwealth deficit as a proportion of CDP
from 4.3 per cent to 3.3 per cent. In the confident
expectation of continued economic recovery, and
therefore of continued increases in private investment
demands on financial markets, prior to last year's
election I pledged my Government to:
Further reductions in the deficit in money terms in
1985-86 and as a proportion of GDP over the life of
the current Parliament;

* No increase in Commonwealth tax revenue as a
proportion of GDP in 1985-86 and over the life of the
Parliament; and
* A reduction in Government expenditure as a proportion
of GDP in 1985-86 and over the life of the
Since the election we have moved quickly to give effect
to these undertakings. The whole process of budget
preparation has been accelerated and the Government is
currently well advanced in designing a budget with a
deficit significantly below the current year in money
terms. This further substantial reduction in the
Commonwealth deficit, from 3.3 per cent to approaching
two and a half per cent of GDP, will have been achieved
entirely through the combination of expenditure
restraint and economic growth, without any increase in
the overall tax burden.
We have consistently applied monetary policy designed to
support strong growth but not any resurgence of
inflation. There has been no change in our application
of firm monetary policy within this approach since we
suspended the monetary projections in January, when it
became clear that deregulation was seriously distorting
monetary measurement-~
And underpinning all of our policies for economic
recovery, and making it possible to implement fiscal and
monetary policies for growth, is the Prices and Incomes
Accord. The Accord has always had its detractors. There were,
of course, those who said it could not work because the
ACTU could not deliver. Others argued on doctrinal
grounds that incomes and prices policies cannot succeed.
Even in the face of its obvious success there are th--se
who contend that a slower rate of wage increase,
purportedly more appropriate to current economic
circumstances, would have been generated within a
decentralise. d system without the Accord.
The evidence is against the detractors. The decline in
real unit labour costs to the levels of the late 1960s
and early 1970s and the halving of the rate of infla~ tion
over the past two years, through a period of strong
economic growth, are against them. The continued
commitment of the overwhelming majority of the trade
union movement to wage moderation within the Accord is
against them. And the Australian historical experience,
when time after time incipient economic recovery has
been dissipated in unrealistic income claims and a

resurgence of inflation, is against them.
With two years of reduced inflation and moderated wage
demands behind us, there is no doubt at all that the
Accord, combined with the Labor Government's other
policies, has produced a marked break in inflationary
expectations. The wages policy dimensions of-the Accord do not exist
in a vacuum. Crucially, they are supported by the
Government's commitments to consultation and consensus,
to the equitable distribution of the benefits of
economic growth, and to the achievement of sustained,
strong non-inflationary growth. I have always seen
these three commitments as inter-related parts of the
one great program.
No progress can be made on any one of the three without
support from the others.
Without sustained non-inflationary growth, there can be
no progress towards any other objective.
Without sustained growth, high and rising unemployment
will increase the number of Australians living in
poverty. Without sustained growth there will be
insufficient resources to provide adequately for
Australians in need..
But equally, only an Australian society that is broadly
united on the great national goals, and which is seen by
most of its citizens as a fair society, will embrace the
changes which are necessary for sustained growth.
This is the essential context of the Accord and the
fundamental reason why the Accord is equal to the
challenges that inevitably lie along the path to
establishing sustained non-inflationary growth in
Australia. The immediate challenge is the re-establishment of
stable conditions, favourable to non-inflationary
economic growth, in financial markets, and to ensure
that the recent fall in the international value of the
Australian dollar does not give rise to a resurgence of
inflation. And the greatest challenge to our long-term
aims of establishing Australia as a fairer, growthoriented
society is the implementation of a progressive
reform of the Australian taxation system; reform wizhin
the constraints of the trilogy and the Nine Princip'es
that I announced during the election campaign, and which
does not threaten the gains we have made in reducing
inflation. Later, I will deal with each of these in
some detail.

There were good grounds for expecting a third year of
strong growth in 1985-86, even before the recent
depreciation of the Australian dollar. Real
depreciation if maintained will provide an impetus
to expansion of exports and substitution of domestic
production for imports, which should add progressively
to output growth over the next year or two. The dollar
depreciation has other less favourable effects to which
I will return. But first I would like to say more about
the facts that justify confidence that the recovery in
the real economy is on course.
National Accounts estimates for the December quarter are
not expected for another month. However, partial
indicators point to a strengthening in private sector
demand in the December quarter and to the continuing
I. good prospects for the remainder of this financial year
C and through 1985-86.
The value of retail sales rose 2.9 per cent in the
December quarter ( perhaps as much as 1.5 per cent in
real terms), following a 2.4 per cent rise in September
( 1.1 per cent in real terms). Another significant
component of private final consumption expenditure that
is not covered by the retail sales series is motor
vehicles, and vehicle registrations grew by 3.5 per cent
in the December quarter.
You will recall that the Budget forecasts provided only
for 2 3/ 4 per cent volume growth in private
consumption after abstracting from the impact of
Medicare on the measurement of that aggregate. The
recent data confirm the Government's comments during the
election campaign that this forecast seems likely to be
comfortably exceeded.
Following a fall in the September quarter, business
investment appears to be strengthening on a path that
will see the Budget forecasts exceeded, and that wi.. i
provide further strong growth in 1985-86. The late~ z
ABS survey figures, covering around 85 per cent of
business investment, indicate 3.8 per cent growth in
investment in the December quarter, with even stroncar
growth projected over the remainder of 1984-85 and into
* next financial year, again as was indicated during the
election campaign.
Housing activity led the recovery in 1983 and remains
strong. Today's figures on building approvals show
continuing strength through to January. Commencements
grew by 2.1 per cent in the September quarter, and looks
set to meet or exceed the total of 145,000 mentioned in

the Policy Speech. A flattening out in the vicinity of
this high level is desirable, and consistent with the
Government's expectations of continued strong overall
private sector growth in the next financial year.
Employment growth had been extraordinarily strong
through 1983-84 but, as measured in the ABS survey,
weakened early in this financial year. Since then,
there has been a return to strong growth in employment.
One hundred and ten thousand jobs have now been created
in the first eight months of this financial year. The
Jeremiahs seized with glee the weaker figures early in
the financial year as indicating that the budget
forecasts were wildly over-optimistic. With today's
figures from the Statistician, employment has already
expanded by almost 2 per cent in the first 8 months of
the year, and the Budget forecast of about 2 1/ 2 per
cent now seems well within range.
Today's Labour Force figures bring total employment
growth in the twenty two months since we changed the
course of Australian economic history at the National
Economic Summit Conference to 360,000. We are running
ahead of our target of half a million new jobs in our
first three years of office.
The dramatic contrast between the experience of
employment growth under the Labor Government, and that
under the conservative government which we replaced, is
a measure of the relative success of the two
governments approaches to economic policy.
In less than two years under our policies, 360,000 new
jobs have been created. in seven years and four months,
a total of 340,000 new jobs were created under the
policies of our predecessors.
Perhaps this is not a fair test of the performance off a
conservative government that was dedicated to fightinga
inflation first, and which explicitly allocated lower
priority to expanding employment and reducing
unemployment. Unfortunately for the conservatives, the comparison of
performance on inflation is equally favourable to the
Labor Government. The conservative administration,
after over seven years of fighting inflation first, left
Australia with an annual inflation rate over 11 per cent
or about twice the OECD average. After two years of
fighting unemployment and inflation at the same time,
the inflation rate has fallen by half, to a level close
to the OECD average.

Through the recent period of strong growth there has
been one weakness in the real economy : the growing
deficit in the current account of the balance of
payments. A surprisingly high proportion of the growth
in domestic demand has been flowing into imported goods
and services, as reflected particularly in rising shares
of imports in domest ic demand for manufactured goods.
At the same time, after strong growth in 1983-8, export
growth, particularly for manufactured goods, has slowed
appreciably in recent months. Concern about this
weakness came into sharp focus with the publication of
the December quarter balance of payments statistics,
which contained substantial upward revisions to previous
estimates of imports. This weakness, together with
anxieties about a-temporary break in the improved
industrial relations that have generally prevailed since
the change in Government two years ago, and other
sources of uncertainty, combined to generate sudden
weakness in foreign exchange and, less markedly, bond
markets. Some observers have seen this combination of
events as threatening recovery, particularly through
their potential for rekindling inflation.
Certainly the combination of a weak Australian dollar,
and a return to unsustainable rates of wage increase,
would have the potential for rekindling inflation and
undermining recovery. The Government recognises the
risk and is committed to ensuring that this challenge to
recovery is effectively met.
The fall in the international value of the Australian
dollar in itself is not a threat to recovery. Indeed,
it is the most effective instrument for correcting the
rapidly expanding current account deficit. The rapid
increases in the import shares of many categories of
domestic demand and the disappointingly weak export
performance of the manufacturing sector are clear
indications that the depreciation in Australia's real
effective exchange rate through 1983 and 1984 had not
been large enough to remove the huge deterioration in
our international competitiveness that had occurred
through the-. period of the wages explosion and
artificially high exchange rates in the early 1980s.
This would seem to be part of the explanation for the
apparently low ( although positive) manufacturing output
growth over the past year.
I should add in passi ng that the major adjustment which
has occurred relatively painlessly this year under the
floating exchange rate, could have been achieved only
with great trauma, domestic financial instability and
economic disruption under the old managed system which
we inherited in March 1983 and abandoned nine months

If the recent real depreciation is sustained, it will
have a major effect in strengthening our international
competitiveness, including in manufacturing.
At the same time, the depreciation will raise the price
of a range of imported, exportable and import-competing
goods, directly raising the average domestic price
level. This price effect is an inevitable accompaniment
of depreciation, and in itself does nothing to impair
the associated improvement in competitiveness. It will
lead to higher CPI increases than would otherwise have
been observed over the next year or so.
The important challenge for the maintenance of recovery,
is to ensure that this initial rise in consumer prices
does not initiate a debilitating upward spiral of costs
and prices. We will be working to ensure that the
depreciation does not reduce the substantial gains that
we have made in lowering the underlying inflation rate.
Much public discussion of this issue has focussed
narrowly on the possibility of discounting wage
indexation for the component of inflation that is
contributed directly by the price increases associated
with the depreciation.
The Accord provides a cooperative forum within which
appropriate responses to problems like the current
threat of a resurgence in inflation can be discussed.
If the Government came to believe that the discounting
of wage indexation increases for the direct price
effects of depreciation was the most effective way of
responding to this prospect it would raise the matter
within the consultative processes of the Accord.
But as I said in the Parliament two weeks ago, the
discounting of wage increases is only one of a number of
ways of ensuring that the depreciation does not ignite a
new inflationary spiral.
Strict compliance with wage increases determined within
the centralised system is obviously more important than
ever. In this context, some reassurance can be drawn
from the fact that the dispute involving public service
unions was the only one of the major industrial disputes
which we experienced earlier this year which involved a
direct challenge to the centralised approach to wages
policy within the Prices and Incomes Accord. Now that
the public service dispute is back before the
Arbitration Commission, all of the influence and power
of Government will be applied to ensure that the
Commission ' s decision is effective.
The inflationary threat, the need to preserve the recent

improvement in Australia's international
competitiveness, and the deterioration in Australia's
terms of trade which was one of the underlying causes of
the Australian dollar's depreciation, are all relevant
to the deliberations of the Arbitration Commission in
any future productivity hearing.
In preventing the depreciation from leading to an
increase in the underlying rate of inflation, the
Government will explore every option available to it to
ensure that the depreciation does not lead to a
continuing spiral of increases in business costs and
Since the first relevant wage indexation increase will
not occur for over six months, there is time for the
Government carefully to weigh the alternatives. But you
should know that the Government is determined to
6 preserve the competitive benefits of any sustained
depreciation, and to prevent the depreciation leading to
a new inflationary spiral.
Looking to longer term economic performance, nothing is
more important than the review of the taxation system
that is now in process.
As a minimum, the review must come to grips with four
flaws in the current taxation system.
It must address the widespread avoidance and evasion,
especially by people with income well above the
Australian average, which has caused a large proportion
of the Australian community to believe that the system
is unfair.
It must address poverty traps. I refer to the
difficulty for people dependent on welfare payments to
earn additional after-tax income, and the associated
disincentive to work, resulting from the interaction of
substantial marginal tax rates at low levels of income
with the social security system.
The review must address the unfairness and the
associated effects on work effort of workers on average
incomes paying the current 46 per cent marginal tax rate
on incomes above $ 19,500.
And while the evidence is more ambiguous on
disincentives to incremental work effort high in the
income scale, the review must address the powerful
distortions to resource allocation inherent in a 60 per
cent marginal tax rate cutting in at less than twice
average weekly earnings, within a system that provides
ways for turning taxable income into untaxed benefits.

It has been clear from the first discussion of tax
reform in EPAC nearly two years ago, that reform would
have to focus on integrated packages to be considered as
a whole, which are likely to commend themselves to broad
sections of the community. No doubt every interest
group would prefer to exclude or vary some elements of
any such package. But there is no way that we will
achieve community understanding and agreement if debate
focuses on single components and does not address
overall packages, and their total effects.
Over the next couple of months, the Government will be
considering the components of possible packages of
reform measures consistent with the Nine Principles. In
deciding among these the Government will be concerned to
promote economic efficiency, fairness and simplicity.
We are not engaged in a search for some simple technical
solution to the tax problem. We know that no single,
unambiguously best answer to the great taxation
questions is waiting to be grasped. It is our intention
to move us as far as possible towards efficiency,
fairness and simplicity according to the perceptions of
a large proportion of Australians. And the perceptions
of Australians will develop through the process of
discussion which will occur through this year.
In our efforts to reform the tax system, we are aware
that it is dangerous to allow the best to become the
enemy of the good. It would be a tragedy for Australia
if there were no tax reform at all because every
political group and every interest group, each from its
own entrenched position, was insisting on its version of
the best package, even when this package was unable to
win widespread community support during the period
within which the taxation issue must be debated and
We do not underestimate the magnitude of the task.
W6 are fully aware that the main reason why tax refczm
has so long been ignored, is that it is hard. We know
that even this time, with the Government committed to
reforms that make Australia a fairer society better able
to realise its potential for strong economic growth,
reform might not be possible.
We are very much aware of the constraints on policy
imposed by established perceptions and the political and
vested interests to which I referred in the opening
paragraphs of this speech.
We cannot hold out for the nirvana of unanimous

agreement in this difficult area, but, unless we can win
broad-based community support, the package will be
denied the foundation it needs for effective
As we see it, the challenge presented by the need for
tax reform is not just for the Government.
It is a challenge for the whole Australian community.
The debate surrounding tax reform as we approach the
Summit in early July will be a test of the maturity of
the Australian political process, and of our ability to
approach complex issues calmly and analytically.
The community debate is a serious and major part of the
decision-making process on tax reform.
Through this meeting, I would like to affirm with the
Australian people, the undertaking that I gave during
the election campaign and which is embodied in the Nine
Principles : the Government will not proceed with the
legislation of a taxation reform package which does not
have broad community support.
In return for this commitment I seek from Australians a
climate of rational, calm discussion and genuine
examination of proposals. I ask that any components of
alternative packages be examined as part of the whole
and not in isolation and, above all, that people avoid
pre-judging either the process or the issues until the
facts have been presented comprehensively.
Certainly the degree of consensus within the Australian
community on tax reform will be greater the more tax
reform represents some reduction in total taxation
levels. We have made a firm commitment to the
Australian people that we will not increase the overall
tax burden. We will be working to ensure that there is
some reduction in the overall tax burden for most
Australians. This can most readily be achieved if we
make a comprehensive assault on tax avoidance and
evasion as part of a reform package. But whatever
approach is taken it seems likely that ordinary
Australians will win on some components of a reform
package, lose on others, and overall come out on top.
The debate about the overall tax burden also has to be
put in perspective. In the end it can only be
effectively contained through expenditure restraint. it
will be a major test of how serious the Opposition is
about reducing taxes while reducing the deficit, to see
whether they support the hard measures on expenditure
that we will be implementing in the coming Budget and if

4 they oppose these, to see whether they suggest
substantial alternatives.
Successful tax reform, with broad community support, is
important to economic efficiency, to equity, and to
restoring a sense of common purpose to the Australian
community. It stands beside, and in some ways above,
the other structural reforms that we are undertaking to
lift Australia's performance as a dynamic economy and
society offering full opportunities for participation to
all its citizens the efforts to increase the
availability, quality and relevance of education; the
review of labour market, training and related youth
programs; the industry policies directed at building on
our competitive strengths and reducing reliance on
barriers to imports; the active trade policy, directed
particularly at making the most of opportunities in the
dynamic Western Pacific region; the financial sector
reforms; and the redirection of social security
expenditure towards Australians in genuine need.
Successful tax reform will require broad community
support. In particular, if it is to avoid igniting an
inflationary spiral of huge and unsustainable
proportions, it will require the active cooperation of
the trade union movement.
I will be looking for the same sort of cooperation from
the Australian community that has been given so readily
over the past two years, to the great task of economic

Transcript 6611