EMBARGOED UNTIL DELIVERY CHECK AGAINST DELIVERY
CAI ANNUAL DINNER
CANBERRA 28 NOVEMBER 1985
LADIES AND GENTLEMEN
IT GIVES ME MUCH PLEASURE TO SPEAK ON THIS OCCASION OF YOUR
ANNUAL DINNER. WE IN GOVERNMENT RECOGNISE THE IMPORTANCE OF
THE CAI AS A MAJOR EMPLOYER GROUP AND AN INTEGRAL PART OF
THE AUSTRALIAN INDUSTRIAL RELATIONS SYSTEM. YOUR
ORGANISATION HAS PLAYED A VALUABLE ROLE IN REPRESENTING A
WIDE RANGE OF BUSINESS INTERESTS AND IN ASSISTING THIS
GOVERNMENT DEVELOP POLICIES RELEVANT TO INDUSTRY.
RECENTLY THERE HAVE BEEN SOME QUESTIONS ABOUT ASPECTS OF THE
GOVERNMENT'S ECONOMIC STRATEGY, DESPITE THE VERY IMPRESSIVE
TURNAROUND OF THE REAL ECONOMY SINCE THIS GOVERNMENT ASSUMED
OFFICE. THIS QUESTIONING HAS BEEN GIVEN SOME FOCUS BY THE
RECENT BEHAVIOUR OF THE AUSTRALIAN DOLLAR.
TONIGHT, I WANT TO OUTLINE TO YOU WHY THE GOVERNMENT
BELIEVES THAT THE FUNDAMENTALS OF OUR ECONOMIC STRATEGY ARE
CORRECT. IN PARTICULAR, I WANT TO PAY ATTENTION TO THE
GOVERNMENT'S PRICES AND INCOMES POLICY AND THE ACCORD.
SINCE THE GOVERNMENT CAME TO OFFICE IN MARCH 1983, WE HAVE
STEADFASTLY APPLIED A COHERENT ECONOMIC STRATEGY TO RESTORE
SUSTAINED ECONOMIC GROWTH TO THE AUSTRALIAN ECONOMY, AND TO
REVITALISE AUSTRALIAN INDUSTRY.
DURING THAT PERIOD WE HAVE SOUGHT TO CORRECT THE IMBALANCES
IN THE ECONOMY WHICH WE INHERITED IN EARLY 1983. THESE
INCLUDED ENTRENCHED INDUSTRIAL DISHARMONY, DOUBLE DIGIT
INFLATION, RISING UNEMPLOYMENT, A SUBSTANTIAL AND RISING
BUDGET DEFICIT, A COLLAPSE IN THE PROFIT SHARE, POOR
INTERNATIONAL COMPETITIVENESS AND A TIRED AND COMPLACENT
INDUSTRIAL BASE.
AND, IN EACH CASE WE HAVE SUCCEEDED.
IMBALANCES SUCH AS THESE HAD BEEN RESPONSIBLE FOR A DECADE
OF POOR ECONOMIC PERFORMANCE AND, IF WE HAD NOT ACTED, WOULD
HAVE CONTINUED TO DRAG ON OUR GROWTH POTENTIAL.
THE GOVERNMENT'S APPROACH TO THESE PROBLEMS HAS BEEN TO
IMPLEMENT A RANGE OF COMPLEMENTARY ECONOMIC POLICIES.
MOST FREQUENTLY OVERLOOKED ARE POLICIES TO IMPROVE
AUSTRALIA'S ABILITY TO ADAPT AND TO MAKE THE MOST OF OUR
OPPORTUNITIES. THESE INCLUDE POLICIES AIMED AT REMOVING REGULATORY
IMPEDIMENTS TO DEVELOPMENT AND GROWTH.
THEY ENCOMPASS TRADE POLICIES WHICH SEEK TO EXPAND
AUSTRALIA'S OPPORTUNITIES TO EXPORT, PARTICULARLY IN THE
ASIA-PACIFIC REGION,.
THEY ENCOMPASS INDUSTRY POLICIES WHICH SEEK TO FOSTER NOT
ONLY EFFICIENT AND FLEXIBLE INDUSTRIES, BUT ALSO FORWARD
LOOKING, EXPORT-ORIENTED ENTERPRISES.
THEY ENCOMPASS EDUCATION AND TRAINING POLICIES TO IMPROVE
AND ENHANCE AUSTRALIA'S HUMAN RESOURCES AND RAISE SKILL
LEVE. LS PARTICULARLY OF OUR YOUNG PEOPLE.
AND, TO PROVIDE A SUITABLE MACROECONOMIC FRAMEWORK FOR
STEADY FORWARD MOMENTUM, THEY INCLUDE MONETARY, FISCAL AND
INCOMES POLICIES DESIGNED INITIALLY TO GET THE ECONOMY
MOVING AGAIN AND THEN TO SUSTAIN GROWTH. IT IS TO THESE
ELEMENTS OF OUR POLICY APPROACH THAT I WISH TO DEVOTE MOST
ATTENTION THIS EVENING.
IT IS NOW WELL ACCEPTED THAT THE AUSTRALIAN ECONOMY HAS
PERFORMED EXCEPTIONALLY WELL IN THE FIRST PHASE OF ITS
ECONOMIC RECOVERY. OUR ECONOMIC GROWTH RATES HAVE BEEN THE
BEST OR CLOSE TO THE BEST IN THE WORLD. WE ARE CLOSE TO
DELIVERING ON OUR COMMITMENT OF 500,000 NEW JOBS, WELL
WITHIN THE THREE-YEAR TIME FRAME. MOREOVER, FOR THE FIRST
TIME IN OVER THREE YEARS, THE UNEMPLOYMENT RATE IS BELOW 8
PER CENT.
THE CONJUNCTION OF OUR POLICIES HAS BROUGHT MAJOR BENEFITS
TO BUSINESS.
THE INFLATION RATE LAST YEAR WAS THE LOWEST SINCE 1970-71.
REAL UNIT COSTS OF EMPLOYING LABOUR HAVE FALLEN
SUBSTANTIALLY IN EACH OF THE LAST TWO YEARS, PRODUCING ALSO
A SHARP RESTORATION OF PROFITABILITY. INDUSTRIAL
DISPUTATION HAS BEEN AT ITS LOWEST IN ALMOST TWO DECADES
AND, OVERALL, THERE IS A MORE SECURE AND PREDICTABLE
BUSINESS ENVIRONMENT.
HOWEVER, WITH THOSE ACHIEVEMENTS BEHIND US, THE RECOVERY IS
NOW ENTERING A MORE MATURE PHASE: A PHASE WHICH, IN EARLIER
RECOVERIES, HAS PROVED TO BE ALL TOO SHORT-LIVED.
THE GOVERNMENT IS CONFIDENT THAT, EVEN IF WORLD GROWTH
MODERATES SOMEWHAT, AUSTRALIA WILL CONTINUE TO GROW SOLIDLY
AND DO SO IN A WAY WHICH WILL NOT GENERATE EXCESSIVE
INFLATION; WHICH WILL PERMIT THE NECESSARY IMPROVEMENT IN
OUR CURRENT ACCOUNT; AND WHICH CAN THUS BE CONSISTENT WITH
A SUSTAINED RISE IN OUTPUT AND EMPLOYMENT.
THE REASONS FOR OUR CONTINUED CONFIDENCE ARE THAT ECONOMIC
POLICY HAS BEEN SET WITH THIS END IN VIEW FOR SOME TIME, AND
THE RESULTS TO DATE, WHICH I ALLUDED TO EARLIER.
THE DEPRECIATION, COUPLED WITH OUR POLICY RESPONSES, IS ALSO
A MAJOR FACTOR IN THIS OUTLOOK.
THE POLICY RESPONSES TO DEPRECIATION HAVE BEEN OF TWO KINDS.
FIRST WE HAVE TAKEN DIRECT ACTION, WITHIN THE CONTEXT OF THE
ACCORD, TO INSULATE DOMESTIC COSTS FROM THE DIRECT
INFLATIONARY EFFECTS OF DEPRECIATION AND THUS TO PRESERVE
THE IMPROVEMENT IN OUR COMPETITIVENESS. I WISH TO RETURN TO
THIS ASPECT LATER.
SECOND WE HAVE SET MONETARY AND FISCAL POLICY ON A COURSE TO
SLOW THE GROWTH OF DOMESTIC DEMAND FROM ITS PRESENT TOO
RAPID PACE AND THUS TO ENSURE THAT THE STIMULUS TO GROWTH
WHICH DEPRECIATION WILL PROGRESSIVELY IMPART CAN BE
ACCOMMODATED WITHOUT ENCOUNTERING RESOURCE CONSTRAINTS.
THIS IS BECAUSE WE ACKNOWLEDGE THAT TOO RAPID A PACE OF
EXPANSION WOULD RISK RE-IGNITING COST AND PRICE INFLATIONEVEN
WITH THE RESTRAINING INFLUENCE OF THE ACCORD AND PUT
FURTHER RECOVERY AT RISK.
EXPANSION IN ADVANCE OF THE GROWTH OF THE CAPACITY OF THE
ECONOMY TO SHIFT RESOURCES TO THE TRADEABLE GOODS SECTOR
WOULD ALSO PUT AT RISK THE IMPROVEMENT IN THE CURRENT
ACCOUNT WHICH ITSELF WOULD ALSO PLACE SUSTAINED RECOVERY
AT RISK.
OF COURSE NO ONE IN GOVERNMENT EXPECTED THE BENEFITS OF
DEPRECIATION TO FLOW IMMEDIATELY AS WAS CLEAR FROM THE
1985/ 86 BUDGET PAPERS. NOR WAS IT EXPECTED THAT THERE WOULD
BE AN INSTANT SLOWING OF CREDIT AND DOMESTIC DEMAND WHEN
POLICY INITIATIVES WERE TAKEN FOLLOWING THE DEPRECIATION
EARLIER THIS YEAR.
INDEED BOTH THE TREASURER AND I HAVE STATED CLEARLY THAT IT
WOULD BE THE FIRST HALF OF 1986 BEFORE ANY SUBSTANTIAL
IMPACT WAS LIKELY TO BE FELT IN EITHER CASE.
BUT NEITHER CAN IT BE DENIED THAT THE SUBSTANTIAL
IMPROVEMENT IN OUR COMPETITIVENESS WHICH HAS OCCURREDWHICH
AMOUNTS TO AROUND 20 PER CENT OVER THE PAST YEARWILL
IN TIME RAISE THE MARKET SHARE OF DOMESTIC PRODUCERS
BOTH AT HOME AND IN WORLD TRADE AND THUS REDUCE THE CURRENT
ACCOUNT DEFICIT AS A PROPORTION OF GDP.
NOR DO I MAKE ANY BONES ABOUT THE FACT THAT THE HIGH LEVELS
OF REAL INTEREST RATES WHICH HAVE PERSISTED SINCE EARLY IN
1985 ARE INTENDED EVENTUALLY BEGIN TO SLOW THE GROWTH OF
CREDIT AND TO ENSURE THAT DEMAND GROWTH IN 1985-86 IS
BROUGHT DOWN TO THE BUDGET ESTIM4ATE OF 3 PER CENT.
SOME OF THE RECENT COMMENTARY ON THESE MATTERS HAS BEEN MORE
VOLATILE THAN THE EXCHANGE RATE. AT THE TIME OF THE LAST
BUDGET SOME WERE SCEPTICAL THAT THE GOVERNMENT'S GROWTH
FORECASTS COULD BE ACHIEVED. MORE RECENTLY THERE WAS A
CONCERN THAT THE ECONOMY WOULD EXCEED THOSE FORECASTS AND
THAT THE EXPECTED IMPROVEMENT IN THE CURRENT ACCOUNT WOULD
BE DELAYED AS A CONSEQUENCE. NOW THERE ARE SOME SUGGESTING
THAT MONETARY POLICY IS TOO TIGHT AND THAT A SHARP
CONTRACTION IS IN EARLY PROSPECT: SOME OF THIS PERSUASION
QUOTE THE APPARENT WEAKNESS OF INVESTMENT IN THE SEPTEMBER
QUARTER NATIONAL ACCOUNTS AS EVIDENCE IN THEIR CASE.
THE GOVERNMENT'S POSITION ON ALL OF THESE PROPOSITIONS IS
CLEAR. THE OUTCOME IN THE SEPTEMBER QUARTER NATIONAL
ACCOUNTS IS QUITE CONSISTENT WITH OUR GROWTH FORECASTS
WHICH PRESENTLY SHOW NON-FARM PRODUCT GROWTH IN 1985-86 AT A
LITTLE LESS THAN 5 PER CENT.
THAT FORECAST, IN TURN, IMPLIES A STEADY SLOWING OF DOMESTIC
DEMAND THROUGH THE COURSE OF 1985-86 AND A CORRESPONDING
RISE IN THE CONTRIBUTION TO GROWTH OF NET EXPORTS THE
COUNTERPART OF THE EXPECTED IMPROVEMENT IN THE CURRENT
ACCOUNT. THOSE WHO ARGUE FOR PESSIMISTIC INVESTMENT FORECASTS ON THE
BASIS OF THE OUTCOME IN THE SEPTEMBER QUARTER WOULD DO WELL
TO HEED THE STATISTICIAN'S WARNING ABOUT THE DANGERS OF
RELYING EXCESSIVELY ON MOVEMENTS OVER A SINGLE QUARTER.
BUSINESS INVESTMENT DECLINED SLIGHTLY IN THE QUARTER ( AFTER
ADJUSTING FOR EXTRANEOUS INFLUENCES) BUT THIS FOLLOWED
GROWTH OF 10 PER CENT IN THE JUNE QUARTER. IN FACT, THE
TIMING OF INVESTMENT DECISIONS IN THE PERIOD IS MORE LIKELY
TO REFLECT CHANGES IN THE ARRANGEMENTS RELATING TO THE
INVESTMENT ALLOWANCE THAN MORE FUNDAMENTAL FACTORS. OVER
THE SIX MONTHS TO THE SEPTEMBER QUARTER, BUSINESS INVESTMENT
GREW AT AN ANNUAL RATE OF 14 PER CENT.
SLOW GROWTH IN THE CURRENT HALF-YEAR IS CONSISTENT WITH THE
LATEST ABS INVESTMENT INTENTIONS SURVEY WHICH NONETHELESS
INDICATES A SUBSTANTIAL PICK-UP IN REAL INVESTMENT OVER THE
COURSE OF THE YEAR. I WOULD ADD THAT THE SAME SURVEY ALSO
INDICATES THAT INTENDED INVESTMENT IN MANUFACTURING IN
1985-86 IS 25 PER CENT HIGHER THAN THE CORRESPONDING
ESTIMATE A YEAR AGO. AMONGST OTHER THINGS, THIS IS
CERTAINLY A POSITIVE SIGN THAT THE ECONOMY IS GEARING UP TO
TAKE ADVANTAGE OF THE DEPRECIATION.
MORE GENERALLY, THE ACCOUNTS DEMONSTRATE CLEARLY THE STRONG
GROWTH IN PRIVATE DOMESTIC DEMAND AND OUTPUT WHICH IS
CONTINUING, IN ADVANCE OF THE IMPACT OF SOME EARLIER
TIGHTENING OF MONETARY AND FISCAL POLICIES. PRIVATE FINAL
DEMAND ROSE AT THE SOLID ANNUAL RATE OF 4.4 PER CENT IN THE
SIX MONTHS TO SEPTEMBER, AND OUTPUT AT 7.4 PER CENT. WITH
THE STIMULUS FROM DEPRECIATION IN THE PIPELINE, THESE
STATISTICS SHOW CLEARLY WHY THE GOVERNMENT HAS SET MONETARY
AND FISCAL POLICY ON THEIR PRESENT MORE RESTRICTIVE COURSES.
AS IS WELL KNOWN MONETARY POLICY WAS FIRMED EARLIER THIS
MONTH, AT A TIME WHEN IT WAS NECESSARY TO PROVIDE A
BREATHING SPACE WHILE FOREIGN EXCHANGE M4ARKETS WERE
UNSETTLED.. BUT IMPORTANT AS THE EXCHANGE RATE IS, MONETARY
POLICY IS NOT SET SOLELY WITH AN EYE TO THAT PRICE.
AS THE TREASURER AND THE GOVERNOR OF THE RESERVE BANK HAVE
SET OUT ON A NUMBER OF OCCASIONS, THE CONDUCT OF MONETARY
POLICY HAS BEEN GUIDED BY REFERENCE TO THE COMPLETE RANGE OF
ECONOMIC DEVELOPMENTS INCLUDING ACTUAL AND PROSPECTIVE
INFLATION, GROWTH, EMPLOYMENT, INTEREST RATES AND VARIOUS
MONETARY AGGREGATES.
IT IS OUR ASSESSMENT OF THE OVERALL PERFORMANCE OF THE
ECONOMY THAT HAS LED TO THE FIRM MONETARY POLICIES
THROUGHOUT 1985 AND THAT STANCE WILL CONTINUE SO LONG AS
IT IS JUDGED TO BE APPROPRIATE.
FISCAL POLICY ALSO HAS BEEN ASSIGNED A MAJOR ROLE. BECAUSE
OF THE DEPRESSED STATE OF THE ECONOMY AT THE TIME IT ASSUMED
OFFICE, THE GOVERNMENT INITIALLY PURSUED MEASURED
STIMULATORY POLICIES, WHICH HAVE BEEN PROGRESSIVELY WOUND
BACK AS PRIVATE SECTOR RECOVERY HAS GATHERED MOMENTUM.
AT 2.1 PER CENT OF GDP, THE COMMONWEALTH DEFICIT IS BUDGETED
IN 1985-86 TO BE LESS THAN HALF THE PROSPECTIVE OUTCOME OF
PER CENT WHICH WE INHERITED FROM OUR PREDECESSORS. AND,
REFLECTING AGREEMENTS REACHED WITH THE STATES, THERE HAS
BEEN A SIMILAR DECLINE ( OF 2.7 PERCENTAGE POINTS) IN THE
AGGREGATE PUBLIC SECTOR BORROWING REQUIREMENT.
I WOULD ADD THAT THIS HAS BEEN ACHIEVED EVEN WHILE
SUBSTANTIAL IMPROVEMENTS HAVE BEEN MADE IN ASPECTS OF THE
SOCIAL WAGE IMPROVEMENTS WHICH HAVE FORMED AN IMPORTANT
ELEMENT IN OUR AGREEMENT WITH THE UNIONS TO ACHIEVE A
SUBSTANTIAL CUT IN REAL LABOUR COSTS BORNE BY EMPLOYERS.
FISCAL POLICY WILL CONTINUE TO CONTRIBUTE TO THE PROCESS OF
ECONOMIC ADJUSTMENT REQUIRED TO SUSTAIN GROWTH. THIS IS
CLEAR FROM OUR WILLINGNESS TO ACCEPT UNPRECEDENTED FISCAL
RESTRAINTS IN THE FORM OF THE TRILOGY, COUPLED WITH OUR
COMMITMENT TO FINANCE THE TAX CUTS AGREED TO IN THE CONTEXT
OF THE NEW ACCORD, NOT FROM ADDITIONAL BORROWINGS, BUT FROM
ADDITIONAL EXPENDITURE RESTRAINT.
AS I INDICATED EARLIER, THE ACCORD JUST AS IN THE FIRST
PHASE OF AUSTRALIA'S ECONOMIC RECOVERY REMAINS AN
ESSENTIAL ELEMENT OF OUR POST-DEPRECIATION ADJUSTMENT
STRATEGY. THE CENTRALISED SYSTEM OF WAGES FIXATION PROVIDES THE ONLY
FRAMEWORK WITHIN WHICH IT WOULD HAVE BEEN POSSIBLE TO
IMPLEMENT THE WAGES ELEMENTS OF THE ACCORD. THAT SYSTEM
AND THE AGREEMENTS REACHED UNDER THE ACCORD HAVE DELIVERED
A DEGREE OF DOWNWARD FLEXIBILITY IN OVERALL REAL LABOUR
COSTS THAT IS UNPARALLELED IN RECENT AUSTRALIAN EXPERIENCE.
WHO WOULD HAVE PREDICTED, THREE YEARS AGO, THAT DESPITE OVER
TWO YEARS OF STRONG ECONOMIC UPTURN AND WITH PROSPECTS OF
CONTINUED STRONG GROWTH THAT THE RISE IN AVERAGE WEEKLY
EARNINGS OVER THE YEAR TO THE SEPTEMBER QUARTER, AT 4.1 PER
CENT, WOULD BE THE LOWEST ( EXCEPT ONLY FOR THE PREVIOUS
QUARTER) SINCE 1966?.
IN FACT, AS I BEGAN TO SAY EARLIER, WAGES MODERATION OVER
THE PERIOD OF THE ACCORD HAS BEEN SUFFICIENTLY MARKED TO
PERMIT A SUBSTANTIAL DECLINE IN REAL UNIT LABOUR COSTS IN
EACH OF THE LAST TWO YEARS. THAT INDEX OF COSTS IS NOW
BELOW THE AVERAGE LEVEL-OF THE LATE 19601S AND EARLY 1970' S.
AND THE PROSPECT IS UNDER THE ACCORD THAT IT SHOULD BE
NO HIGHER IN TWO YEARS TIME.
I AM AWARE THAT THE RECENT DECISION BY THE ARBITRATION
COMMISSION NOT TO COMMENCE DISCOUNTING FROM THE RECENT
NATIONAL WAGE INCREASE HAS CAUSED DISAPPOINTMENT AMONGST
SOME OF YOUR MEMBERS. LET ME REMIND YOU, HOWEVER, THAT THE
FULL BENCH OF THE COMMISSION CONCLUDED FROM THE EVIDENCE
BEFORE IT THAT THE ECONOMIC EFFECTS OF SPREADING A DISCOUNT
OF 2 PER CENT BETWEEN THE NOVEMBER AND APRIL WAGE CASES
WOULD BE MINIMAL AND TRANSITORY.
THE GOVERNMENT'S DETAILED ANALYSIS SUPPORTS THIS CONCLUSION
AND WE ARE OF THE VIEW THAT MOVEMENTS IN THE CPI WOULD BE
VIRTUALLY THE SAME FROM THE MIDDLE OF 1986 UNDER. EITHER
APPROACH. ON PRESENT ESTIMATES A DISCOUNT OF 2 PER CENT WOULD ALMOST
PRECISELY OFFSET THE DIRECT EFFECT OF DEPRECIATION ON THE
CPI RELEVANT TO THE DETERMINATION OF THE NEXT NATIONAL WAGE
CASE.
AS YOU KNOW OTHER OFFSETS HAVE BEEN AGREED BETWEEN THE
GOVERNMENT AND THE ACTU. UNIONS HAVE AGREED TO MODERATE
THEIR PRODUCTIVITY CLAIM TO A WAGE-EQUIVALENT OF 3 PER CENT,
TO BE PAID IN THE FORM OF NEW OR IMPROVED OCCUPATIONAL
SUPERANNUATION. THE PAYMENT OF THIS CLAIM AS
SUPERANNUATION WILL FURTHER REDUCE THE EFFECT ON TOTAL
LABOUR COSTS TO ABOUT 2 1/ 2 PER CENT, BECAUSE SUPERANNUATION
PAYMENTS DO NOT TYPICALLY BEAR THE SAME IMPLICATIONS FOR
ON-COSTS AS DO TRADITIONAL WAGES INCREASES. THIS COST'
IMPACT IS TO BE SPREAD OVER A TWO-YEAR PERIOD AND THERE IS
TO BE NO FURTHER CLAIM BASED ON PRODUCTIVITY UNTIL 1988.
THE GOVERNMENT IS CONCERNED TO ENSURE THAT ALL ASPECTS OF
THE AGREEMENT IN RESPECT OF THE PRODUCTIVITY CASE ARE
HONOURED BY ALL CONCERNED.
THESE INCLUDE THE REQUIREMENT THAT, EVEN THOUGH NEGOTIATIONS
TOWARDS ESTABLISHING NEW SUPERANNUATION ARRANGEMENTS MAY
PROCEED, THE COST IMPACT SHOULD NOT BE FELT BEFORE JULY 1,
1986. THERE CAN BE ONLY VERY ISOLATED EXCEPTIONS TO THAT
RULE. IN PARTICULAR NO PROPOSAL WILL BE ENTERTAINED BY THE
GOVERNMENT WHICH SIGNIFICANTLY ADDS TO TOTAL COSTS BEFORE 1
JULY AND THE GOVERNMENT IS CLOSELY MONITORING DEVELOPMENTS
IN THIS AREA.
I WOULD ADD THAT THE GOVERNMENT DOES NOT SUPPORT INDUSTRIAL
ACTION IN SUPPORT OF SUPERANNUATION CLAIMS. IN OUR VIEW
SUCH ACTION IS INCONSISTENT WITH THE SPIRIT OF THE AGREEMENT
BETWEEN THE GOVERNMENT AND THE ACTU.
THE GOVERNMENT WILL SHORTLY BE CIRCULATING FOR COMMENT
INCLUDING TO THE CAI A SET OF DRAFT GUIDELINES TO GOVERN
SUPERANNUATION SCHEMES. WE WILL WELCOME YOUR COMMENTS ON
THE DRAFT.
THE GUIDELINES WILL BE DRAWN UP TO MAKE IT CLEAR THAT,
CONSISTENT WITH THE NEEDS OF OUR RETIREMENT INCOMES POLICY,
ONLY ARRANGEMENTS TO PROVIDE GENUINE SUPERANNUATION BENEFITS
WILL BE ACCEPTABLE TO THE GOVERNMENT. SCHEMES WHICH DO NOT
COMPLY WILL BE DENIED THE TAXATION CONCESSIONS OTHERWISE
AVAILABLE TO ENCOURAGE THIS FORM OF SAVING.
THE APPROACH WHICH WE HAVE TAKEN IN REACHING THIS AGREEMENT
WITH THE ACTU TO MAKE A JOINT APPROACH TO THE CONCILIATION
AND ARBITRATION COMMISSION ON THOSE MATTERS IS SIMILAR IN
KIND TO OUR EARLIER AGREEMENTS IN RESPECT OF THE MEDICARE
ADJUSTMENT TO THE CPI, THE FOREGOING OF CATCH-UP CLAIMS
AFTER THE 1983 WAGES FREEZE, AND THE AGREEMENTS NOT TO SEEK
WAGES INCREASES INCONSISTENT WITH THE PRINCIPLES LAID DOWN
BY THE COMMISSION.
THE AGREEMENT IN RESPECT OF PRODUCTIVITY RECOGNISES THE
ENTITLEMENT OF UNIONS, UNDER THE PRINCIPLES, TO MOUNT SUCH A
CLAIM TO SHARE IN THE GROWTH OF NATIONAL INCOME BUT SEEKS
ALSO TO ARGUE FOR AN OUTCOME WHICH IS CONSISTENT WITH THE
NEEDS OF THE ECONOMY OVERALL.
IN THIS CASE THE SIZE AND TIMING OF THE CLAIM, AND THE
PROPOSAL THAT THE CLAIM BE PAID OVER TWO YEARS, ARE ALL
SIMULTANEOUSLY DESIGNED TO CONTAIN INFLATIONARY PRESSURES,
MAINTAIN OVER TIME THE IMPROVEMENT IN REAL UNIT LABOUR COSTS
AND CONTRIBUTE TO PRESERVING THE IMPROVEMENT WHICH HAS
OCCURRED IN OUR INTERNATIONAL COMPETITIVENESS. OF COURSE IT
WILL BE FOR THE COMMISSION TO DETERMINE WHETHER THE AGREED
APPROACH IS ACCEPTABLE, ON THE EVIDENCE TO BE PRESENTED TO
IT.
WHILE IT IS A FIRM PRINCIPLE THAT THE COST OF ANY
PRODUCTIVITY AWARD SHOULD NOT EXCEED 3 PER CENT, IT IS
ENVISAGED THAT EMPLOYERS AND EMPLOYEES WILL HAVE SOME
FLEXIBILITY WITHIN THE GENERAL GUIDELINES ABOUT ASPECTS
OF ANY PRODUCTIVITY AWARD MADE IN TERMS OF THE AGREEMENT. I
NOTE THAT THERE IS ALSO SOME LIMITED FLEXIBILITY. UNDER THE
OPERATION OF THE CURRENT WAGES FIXING PRINCIPLES, TO
ACKNOWLEDGE DEMONSTRABLE CASES OF INCAPACITY TO PAY NATIONAL
WAGE INCREASES.
HOWEVER, THE HALLMARK OF OUR APPROACH HAS BEEN TO SEEK
OUTCOMES WHICH, WHILE PRESERVING EQUITY, DELIVER THE MAXIMUM
FEASIBLE RESTRAINT IN AVERAGE OUTCOMES FOR LABOUR COSTS.
AND, AS THE EVIDENCE WHICH I HAVE PRESENTED CLEARLY SHOWS,
OUR APPROACH HAS BEEN HIGHLY SUCCESSFUL.
IT IS UNDERSTOOD THAT THIS MAY, AT TIMES, BE AT THE COST OF
A DEGREE OF FLEXIBILITY IN RELATIVE WAGES WHICH, IN OTHER
CIRCUMSTANCES, COULD HAVE BEEN DESIRABLE. THIS REFLECTS THE
JUDGEMENT THAT, IN THE CIRCUMSTANCES OF THE STRONGLY GROWING
AUSTRALIAN ECONOMY. WHICH OUR POLICIES HAVE PRODUCED AND
AGAINST THE BACKGROUND OF AUSTRALIA'S INDUSTRIAL HISTORY
AND, IN MANY WAYS, UNIQUE INSTITUTIONS THE PURSUIT OF
APPROPRIATE OUTCOMES FOR LABOUR COSTS OVERALL SHOULD NOT BE
JEOPARDIS ED.
THERE IS A STRONG TEMPTATION FOR ME TO ENGAGE IN SOME
POLITICAL POINT SCORING ON THIS MATTER BUT IN THE INTERESTS
OF PROMOTING A MORE INFORMED DISCUSSION, I WILL CONFINE
MYSELF TONIGHT TO ADDRESSING THE SUBSTANTIVE ISSUES IN THIS
DEBATE.
THE FIRST ISSUE IS TH. E FREQUENT ASSERTION THAT A LESS
CENTRALISED APPROACH TO WAGES DETERMINATION WOULD IMPROVE
JOB PROSPECTS.
THE INTERNATIONAL EVIDENCE FOR THIS PROPOSITION IS AT BEST
AMBIGUOUS. IN ITS EMPLOYMENT OUTLOOK, THE OECD INDICATED RESERVATIONS
ABOUT THE SUPPOSED ADVANTAGES OF SECTORAL WAGE FLEXIBILITY.
IT NOTED THAT DESPITE INCREASED DISPERSION IN MANUFACTURING
EARNINGS IN THE UNITED STATES AND A NARROWING IN CANADA,
WHICH IT HELD TO BE INDICATIVE OF GREATER FLEXIBILITY IN THE
UNITED STATES, EMPLOYMENT IN MANUFACTURING HAS INCREASED
MUCH MORE IN CANADA THAN IN THE US SINCE 1970.
THE OECD ALSO WARNED THAT IT IS IMPORTANT NOT TO SEEK TO
PURCHASE RELATIVE WAGE FLEXIBILITY AT THE EXPENSE OF AN
UNDESIRABLE OUTCOME FOR THE AVERAGE WAGE LEVEL.
OTHER STUDIES HAVE NOTED SIMILAR RESULTS. FOR EXAMPLE BELL
AND FREEMAN'S EMPIRICAL EXAMINATION OF US EXPERIENCE LEADS
THEM TO CONCLUDE:
" THE BOTTOM LINE OF THE US EXPERIENCE IS THAT FLEXIBLE
WAGES BY INDUSTRY HAVE NOT CONTRIBUTED TO EMPLOYMENT
GROWTH".
THEY FOUND THAT PRODUCTIVITY GAINS IN EXPANDING INDUSTRIES
WERE TRANSLATED MAINLY INTO WAGE INCREASES RATHER THAN INTO
MORE JOBS. NO DOUBT THIS REFLECTS THE USE OF INDUSTRIAL
MUSCLE BY UNIONS IN EXPANDING INDUSTRIES.
COMPELLING EVIDENCE OF THE DANGERS OF A LESS CENTRALISED
APPROACH IN AUSTRALIAN CONDITIONS IS TO BE FOUND, HOWEVER,
IN OUR EXPERIENCE IN 1981-82.
LET ME RECALL FOR YOU THE CIRCUMSTANCES OF THE TIME.
NON-FARM GROWTH IN THE YEAR BEFORE HAD JUST TOPPED 4 PER
CENT, FOR ONLY THE SECOND TIME IN 6 YEARS. THE UNEMPLOYMENT
RATE HAD EDGED DOWN TO 5.4 PER CENT IN JUNE 1981 AND ROSE
PROGRESSIVELY THROUGH THE NEXT FINANCIAL YEAR. THE
CORPORATE PROFIT SHARE IN 1980-81, STOOD AT JUST OVER 14 PER
CENT AND LABOUR AND EMPLOYERS ALIKE SHARED HEIGHTENED
EXPECTATIONS OF FUTURE GROWTH GENERATED BY THE RHETORIC OF
THE SO-CALLED RESOURCES BOOM.
IT IS NOW A MATTER OF RECORD THAT, IN THE CONTEXT OF THE
ABANDONMENT OF THE. CENTRALISED SYSTEM IN JULY 1981, WAGES
GROWTH RAPIDLY ACCELERATED, REACHING A PEAK YEAR-TO RATE OF
17 PER CENT.
OF COURSE IT IS IMPOSSIBLE TO PREDICT WITH ANY PRECISION
WHAT ADDITION TO LABOUR COSTS WOULD OCCUR IF THE CENTRALISED
SYSTEM WERE TO BE ABANDONED NOW. BUT WITH GROWTH STRONGER,
THE PROFITS SHARE HIGHER ( AT 16 PER CENT IN THE LATEST
QUARTER) AND THE UNEMPLOYMENT RATE KNOWN TO BE DECLINING, IT
REQUIRES A SOMEWHAT PERVERSE LOGIC TO CONTEND THAT THERE
WOULD NOT BE SUCCESSFUL CLAIMS AND FAIRLY WIDESPREAD AT
THAT IN EXCESS OF THOSE PERMITTED UNDER THE ACCORD.
OF COURSE THE ESSENCE OF A DECENTRALISED APPROACH IS THE
NEED FOR INDIVIDUAL EMPLOYERS TO BE CONVINCED OF THE MERITS
OF THE CLAIM BEFORE THEM. IN AUSTRALIAN CONDITIONS THIS
WOULD INEVITABLY GENERATE A SHARP RISE IN INDUSTRIAL
DISPUTES, AND WITH IT THE PROSPECT OF SUCCESSIVE ROUNDS OF
WAGES BARGAINING BASED ON COMPARATIVE WAGES JUSTICE.
THESE MECHANISMS ARE COSTLY TO EMPLOYERS AND EMPLOYEES
ALIKE. ALONG WITH THE OBVIOUS COSTS OF LOST PRODUCTION,
THEY REQUIRE THE DIVERSION OF EXCESSIVE MANAGEMENT RESOURCES
TO DISPUTE SOLVING, AND ADD AN ELEMENT OF UNCERTAINTY TO ALL
FORWARD PLANNING, AND TO ALL COSTINGS, INCLUDING WHEN
TENDERING FOR EXPORT CONTRACTS.
OUR CENTRALISED APPROACH SHARPLY REDUCES BOTH THE
UNCERTAINTY ELEMENT AND THE RESOURCES REQUIRED FOR THESE
PURPOSES. IT BEARS REMEMBERING THAT INDUSTRIAL DISPUTES ARE
NOW A FRACTION OF THE LEVELS OF EARLIER TIMES. MOREOVER,
THOUGH WE HAVE PROBABLY BECOME SO ACCLIMATISED THAT WE HAVE
FORGOTTEN WHAT IT USED TO BE LIKE, IT IS ALSO TRUE THAT FOR
MOST FIRMS THE EARLIER NEAR CERTAINTY OF FREQUENT AND
PROLONGED INDUSTRIAL DISLOCATION HAS NOW BEEN REMOVED FROM
THE PLANNING HORIZON. NONE OF THIS WOULD BE GUARANTEED IN
THE ABSENCE OF THE ACCORD AND THE CENTRALISED SYSTEM OF
WAGES FIXATION.
IN RECENT TIMES THERE HAS BEEN SOME DISCUSSION INCLUDING
BY THE OPPOSITION OF THE POSSIBILITY OF CREATING SOME
HALF-WAY HOUSE BETWEEN THE PRESENT SYSTEM AND A COMPLETELY
DEREGULATED LABOUR MARKET.
THE PROPOSALS WITH MOST CURRENCY RELY ON SOME MECHANISMS TO
PERMIT ( OR, IN SOME INSTANCES, ENCOURAGE) " OPTING-OUT" OF
THE CENTRALISED SYSTEM. IN ONE CASE IT HAS BEEN SUGGESTED
THAT ALL PENAL PROVISIONS UNDER INDUSTRIAL LEGISLATION BE
WITHDRAWN. IN THE GOVERNMENT'S VIEW A SYSTEM WHICH RELIES STRONGLY ON
COMMON LAW TO ENFORCE AGREEMENTS WOULD RAPIDLY BECOME
UNWORKABLE. KNOWING THAT RECOURSE TO LAW WOULD BE A
LENGTHY, EXPENSIVE AND CUMBERSOME PROCESS, IT IS HARD TO SEE
HOW POWERFUL PARTIES ON EITHER SIDE WOULD NOT SEEK TO
EXPLOIT THE INFLEXIBILITY OF THE SYSTEM, TO THE DETRIMENT OF
THE ECONOMY AS A WHOLE AND THE OTHER PARTY TO THE AGREEMENT.
THE DIFFICULTY WITH OPTING OUT PROPOSALS MORE GENERALLY IS
THAT, WITHOUT THE UMPIJRE, IT IS HARD TO SEE HOW OUTCOMES FOR
AVERAGE WAGES COULD BE ACHIEVED WHICH THE PARTIES MIGHT EACH
AGREE TO BE IN THE NATIONAL INTEREST, BUT WHICH INDIVIDUAL
BARGAINERS CANNOT ABIDE BY IF WAGES GENERALLY ARE SPIRALLING
UPWARDS UNDER THE DICTUM OF COMPARATIVE WAGE JUSTICE.
CLEARLY THE STRONGEST INCENTIVES TO OPT OUT WOULD BE FOR
THOSE UNIONS WITH THE MOST INDUSTRIAL MUSCLE OR IN
PROFITABLE, PACE SETTING INDUSTRIES PARTICULARLY THOSE
INDUSTRIES WHICH ARE MORE SHELTERED FROM INTERNATIONAL
COMPETITION. DEALS CONCLUDED IN THESE SEGMENTS OF THE
ECONOMY AND TRANSMITTED TO THOSE ENGAGED IN TRADE CAN ONLY
BE TO THE DETRIMENT OF OUR ABILITY TO COMPETE.
I CAN ONLY HEARTILY ENDORSE THE CAI'S ASSESSMENT IN ITS
SUBMISSION TO THE HANCOCK INQUIRY THAT AUSTRALIAN EMPLOYERS
DO NOT WISH TO TAKE THE " LEAP IN THE DARK" REQUIRED TO
ESTABLISH A RADICAL DEPARTURE FROM CONCILIATION AND
ARBITRATION.
AGAINST THE BACKDROP OF OUR OTHER POLICY SETTINGS, THE
ACCORD AND THE CENTRALISED WAGES FIXING SYSTEM ON WHICH IT
IS BASED, HAS WORKED TO QUOTE THE OECD SECRETARY-GENERAL
" BRILLIANTLY" TO GET AUSTRALIA'S ECONOMIC FUNDAMENTALS
RIGHT. WE HAVE MECHANISMS IN PLACE TO PRESERVE TO THE
MAXIMUM FEASIBLE EXTENT OUR COST COMPETITIVENESS IN THE WAKE
OF THE DEPRECIATION. WE HAVE IN PLACE MECHANISMS WHICH WILL
ENABLE THE NECESSARY TRANSFER OF RESOURCES TO OUR TRADEABLE
GOODS INDUSTRIES TO BE ACCOMPLISHED AT LEAST COST TO THE
LONGEVITY OF THE RECOVERY WHILE, ALL THE TIME, PRESERVING
FORWARD MOMENTUM IN GROWTH AND JOBS.
LET THERE BE NO DOUBT OF THIS GOVERNMENT'S DETERMINATION TO
CONTINUE TO MANAGE THE AUSTRALIAN ECONOMY TO ENABLE ALL
AUSTRALIANS TO PROSPER AND REALISE THEIR ASPIRATIONS IN THE
1980' S, THE 1990' S AND BEYOND.