AUST8RALIA
PRIME MINISTER
CHECK AGAINST DELIVERY EMBARGOED UNTIL DELIVERY
SPEECH BY THE PRIME MINISTER
CONFEDERATION OF AUSTRALIAN INDUSTRY
CANBERRA 26 NOVEMBER 1987
Brian Ettelston
Daryl George
Bill Blair
First let me say how pleased I am to be able to address you
here tonight.
In the various capacities of my working life I have had a
long association with the CAI. Many personal friends are
here tonight.
So it is always a pleasure to address you.
As you know I was in New Zealand over the weekend to discuss
a range of matters, including the review of CER scheduled
for next year.
Prime Minister Lange and I have set a broad ranging agenda
for the review, consistent with the expressed wishes of
business organisations on both sides of the Tasman.
On the Sunday, David Lange and I went fishing off the Bay of
Islands. Despite the variable weather and rough seas it was
a good day's fishing but the New Zealand fish did seem
determined to cooperate more with David than with me.
Thinking back on it, I now realise that our fishing trip was
somewhat analogous to the current predicament of the
Australian economy and New Zealand's for that matter.
There we were out on the high seas buffetted by forc~ s
beyond our control. But we both stuck to the task, and made
steady progress at it undaunted by the fact that the press
boat, perhaps typically, threatened on a couple occasions to
inundate us.
So, too, Labor's management of the Australian economy has
been steadfast and determined during times of great
uncertainty.
Australia's economy has been buffetted by a complex array of
forces over the four and a half years that my Government has
had responsibility for economic management in Australia.
We all know the chronology. Before we came to office
Australia was in the doldrums of recession in 1982-83; we
then recovered rapidly in a period of strong growth over
1984 and 1985; we were in danger of being swamped by the
massive terms of trade collapse which followed; but we
weathered this storm with significant rates of economic
growth. The seas began to calm for a period because the signs of
successful adjustment had begun to emerge clearly,
especially over the course of this year.
But last month, Wall Street " fell out of bed", and brought a
new set of tensions which stem particularly from the
inadequacies of the economic policies of the world's largest
economies. Through all of this the Government has concentrated on the
task at hand, read the seas correctly and got on with the
job, fair weather or foul.
That's the essence of the message I want to put tonight.
The fall in the value of the shares listed on the world's
major stock exchanges has certainly been unprecedented.
similarly the associated realignment of the major currencies
by foreign exchange markets has been dramatic.
Adjustments of this magnitude cannot be accommodated over so
short a time without at least some dislocations elsewhere in
the world economy.
But this is not a time for Australia to hide behind
simplistic remedies.
The question to be answered is how severe these dislocations
will be and what implications flow for economic policy
making in Australia.
We have these questions under active consideration.
At this stage the only accurate answer that can be given is
that it is too soon to tell the magnitude of the likely
impacts on the world economy. V
Nevertheless the directions of change are well enough known
and there are clear signs emerging that the more alarmist
forecasts of doom we heard last month have little
credibility today.
Some commentators have suggested that we should assume the
worst possible scenario and have prescribed, as they
regularly do, a very austere fiscal and wages regime. 02$
The CAI was among those who called for an early tightening
of policy.
Indeed there were many who were just speaking to their
prejudices and who seem to favour fiscal and wages
tightening no matter how tight policy already is.
The important point which I suggest the CAI and others have
ignored is that no business could reasonably shut down a
significant proportion of its plant on the basis of as
little information as we now have about the likely effects
of the stock market correction. Nor should this Government
take such precipitate steps.
But having said that let me make two points plain about the
Government's position.
The first is that as soon as the required policy responses,
if any, can be identified and implemented, we will do so.
The second point is just as important. It is this
Australia can, in the meantime, afford to take the time for
an informed evaluation of the situation. That is because
the policy framework we had put in place was already moving
Australia in the right direction.
This point is frequently overlooked. It is one I will refer
to later.
First let me give you a brief assessment of where I think
the initial burden of adjustment to the stock market is
likely to be felt.
Of course the first effects are confined to the financial
markets themselves.
So sharp a decline in share values has placed a premium on
access to cash.
The Reserve Bank, in line with all other major central
banks, has consistently sought to provide an adequate supply
of cash to the market.
It will continue to do so for as long as is necessary.
Looking further ahead it is clear that for a time world
growth is likely to be slower than previously expected.
Lower stock market values will affect people's assessment of
their own wealth. Those whose wealth has been reduced may
feel the need to save more to compensate, which will slow
the growth of private spending.
Some businesses, especially highly geared ones, may become
cautious about major new investments. U ( 3i)
Moreover the policy adjustments required of the world's
largest economy, the United States, are likely to slow
growth in that economy, at least initially. Any
expansionary measures elsewhere could be slower acting.
But let us keep the stock market crash in perspective.
It ha. s to be viewed against the background of a five year
period of rising share prices in international markets.
Even after recent falls, the Australian All ordinaries share
price index is still about 80 per cent higher than it was
three years ago, and is still at about the same level as in
October 1986.
Moreover growth expectations in some of the major economies
were in the process of being revised upwards prior to the
crash from levels which were reasonable by recent
standards. This suggests I believe that the share market correction is
not likely to precipitate a recession.
That is an assessment which is shared by the OECD.
It is reported that their forecasters are expected to revise
their growth estimates downwards by 1/ 2 per cent in the case
of the US and by 1/ 4 per cent in the case of the industrial
countries as a whole. That would leave growth, at 2 1/ 4 per
cent in 1988 in both cases, which is only 1/ 2 per cent lower
than the average of the last 6 years.
Slower world growth can be expected to peg back the growth
of our exports a little as time passes and to slow the
growth of commodity prices compared to earlier expectations
but on the evidence to date of firm commodity prices since
the crash the impact may not be great.
Domestic economic growth was showing signs of considerable
strength in the September quarter just prior to the stock
market crash.
Although there are grounds for believing that the quarterly
figures overestimate the longer term trend, the latest
national accounts show that private consumption picked up
strongly in the September quarter after declining for much
of 1986-87.
Indeed, this pick-up was somewhat stronger than expected in
the Budget forecasts. V
So if there is some slowing in demand in prospect, it will
be starting from a higher level than we had envisaged at
Budget time.
But perhaps the strongest ground for optimism is the
considerable progress which has already been made in
re-structuring the economy. o u. 3 I
In the first four months of this financial year, our current
account deficit was $ 1.2 billion, or 20 per cent, lower than
for the same period last year.
This reflects a dramatic improvement in our trade account.
over the period, exports rose by nearly 12 per cent while
imports remained roughly unchanged, resulting in a 60 per
cent decline in our merchandise trade deficit.
Moreover, despite many forecasts to the contrary, business
investment has picked up sharply. In the September quarter
non-residential construction rose 11.5 per cent and, most
significantly, equipment investment rose 11.8 per cent.
Taken together these trade and investment figures provide
sure evidence of the reconstruction of the Australian
economy. They also show why we should not be overly concerned about
our capacity to frame policies to weather the choppy seas
which the stock market crash has whipped up.
The sources of our economic reconstruction are firmly rooted
in the congenial environment for business which our economic
policy settings have permitted and in the dramatic
improvement in our international competitiveness.
Let me point to the factors underlying that success.
First is our solid fiscal performance. Having inherited the
prospect of a Budget deficit of $ 9.6 billion in 1983 we have
reduced the fiscal deficit from that horrendous level in
each Budget. Moreover over the last two Budgets we have cut
outlays by more than 3 per cent in real terms.
The accumulated result of five Budgets of fiscal restraint
is that in 1987-88, for the first time in 30 years, we
balanced the Budget.
The great benefit is that, since government is borrowing
less from financial markets, there is less pressure on
interest rates in Australia and less dependence by
Australians on overseas borrowings.
In particular, fiscal restraint has underwritten the
substantial declines in interest rates that we have
witnessed this year. V
A second essential ingredient in producing the right
environment for business has been wages moderation and a
dramatic improvement in industrial disputation.
The figures on wage restraint speak for themselves. In each
of the last two financial years, average weekly earnings
have risen by at least two percentage points less than the
Consumer Price Index. It is expected that average weekly
earnings will again rise by less than the Consumer Price
Index this year.
Moreover, with the introduction of the two-tier wage system
earlier this year, an opportunity has now been provided to
employers to negotiate the removal of restrictive work
practices. This is the best such opportunity provided in Australia's
post war history and I would urge you all to take a personal
inter ' est in ensuring that your own companies make the most
of this opportunity to attain more efficient and productive
work places.
Although in the present wage round there,' is a limit of 4 per
cent on the potential wages gain in second tier agreements,
there is no such limit on the productivity increases that
can be negotiated by employers. It is encouraging to note
that some employers have achieved productivity gains well in
excess of 4 per cent in their second tier agreements.
Despite these achievements achievements which have been
secured not least because of the enlightened cooperation of
the trade union movement some have suggested that the
Government should oppose the ACTIJ's claim for a
1 1/ 2 per cent first tier increase in the current National
Wage Case. Indeed some people in this room have made that
suggestion. But I put it to them that their remedy would be a peculiarly
short-sighted one.
To deny the current National Wage Case claim would put at
risk the high degree of compliance with the centralised
wages fixing principles which has been the foundation on
which sustained real labour cost reductions have been built
over recent years.
It would also put at risk our initiatives to improve work
practices and would undermine improvements in the industrial
relations environment.
If, when the dust settles from recent world financial market
turbulence, there is need for further tightening of wages
policy and I make no predictions that will occur then
Australia's interests will be best served by having in place
a durable basis of trust with the union movement. That will
provide a framework for negotiations and cooperation in
adjusting wages to meet underlying economic imperatives.
In summary on the wages front let me make these points.
There has probably been more nonsense talked on this issue
by our political opponents, many employers and some extreme
elements of the trade union movement an unholy alliance
than on any other area of economic and social policy.
Together they have ignored, avoided or simply not
comprehended the fundamental facts which are these. 0U: 2 8(
Because of the existence of the centralised wage fixing
system and a strong and responsible trade union movement,
since 1983 real wages have declined in a period of overall
economic growth a fact unprecedented in our economic
history. This has been possible because the trade union movement, in
cooperation with this Government, has been prepared to
accept, in the place of real wage increases for a smaller
workforce, improvements in the social wage and an
historically high rate of employment growth with 837,000
new jobs giving a rate of growth twice as fast as the rest
of the world. And all ' this with competitiveness and profit
shares back to the levels-of the late 1960s and early 1970s.
These, as I say, are facts. It is a pity the ritualistic
parading of prejudices seems to have precluded their more
universal recognition.
The third element underpinning Australia's economic
reconstruction has been steady reform of the policies,
practices, rules and regulations which form the backdrop to
the business environment.
This remains a top priority of my Government's third term.
Indeed its relevance to the post-stock-market correcti on
world is, if anything, greater than before because what
counts most at such a time is flexibility.
We want to get government off the back of business as much
as possible and to free up the operation of the
infrastructure to maximise the efficiency of our economy.
That is a large task. It is one which requires a careful
approach to the making and review of regulations which
impinge on the private sector. It also requires dedicated
pursuit of public sector efficiency.
we have required of ourselves the kinds of discipline which
we encourage in the private sector.
The number of Departments has been slashed by 10, eventually
saving 3,000 jobs, and an annual wages bill of $ 107 million.
David Block has been appointed to scrutinise Departmental
operations and Departments are now required to meet an
annual efficiency dividend of 1 1/ 4 per cent of running
costs. These measures will save almost $ 100 million in
1988-89. We have reversed the growth of public service
staff numbers.
Public sector authorities will not be exempted either.
Possible measures include introducing greater competition,
or improved performance criteria.
As you know I have also suggested and not from the point
of view of some manic ideological hang up against public
enterprise that the broader public interest may be better
served by freeing up resources through the disposal of some
public enterprises, provided we could be sure that essential
community requirements would be at least as well served by
the private sector.
The g overnment's record on deregulation is impressive by
anyone's standards.
The most recent example has been the announcement of our
intention to terminate the Two Airlines' Agreement and end
the economic regulation of the domestic aviation industry.
At the same time clear guidelines have been promulgated for
the automatic approval of programs of international charter
flights into Australia and the regulation of liner shipping
has been reformed.
The task of carrying forward the broader agenda of economic
reform is being guided by the Structural Adjustment
Committee of Cabinet.
The Committee has a wide range of matters on its agenda for
consideration in the next few months.
Among other things this includes a review of the
telecommunications industry, aspects of education policy,
the regulatory apparatus for Government business enterprises
and some further areas of transport policy.
The Treasurer also has well in hand a further review of the
business tax system, to see what can be done to reduce
business tax rates through sensible broadening of the
company tax base.
While not an exhaustive list, it illustrates the breadth of
the reform process we have in mind and the strength of our
commitment. No Australian Government has ever attempted
such a wide-ranging review of its microeconomic policies.
Ladies and Gentlemen
Tomorrow I will be departing for a brief visit to Singapore
and the USSR, where I will be joined also by the Minister
for Foreign Affairs and Trade, Bill Hayden.
It will be my first visit to the USSR a~ sPrime Minister and
I expect to hold wide ranging talks with the Soviet
leadership.
As with all my overseas visits, however, we will be giving a
particular emphasis to promoting Australia's trading
interests.
Australia already has a significant trading relationship
with the USSR, which is our eighth largest export market.
m
Bill Hayden and I hope to give new momentum to our longer
term trading relationships in the course of this visit.
Recognising the importance of an appropriate
government-level umbrella for business contacts with the
centrally planned economies, I will be accompanied for the
trade talks in Moscow by a group of Australian businessmen
who are seeking to develop their links with USSR.
In particular they will participate in the discussions with
Mr Kamentsev, Chairman of the State Foreign Economic
Commission. This body was formed in 1986 to facilitate
joint ventures and the like with foreign companies-.
A new agreement is to be signed during the visit which will
provide an expanded framework for the development of our
trading relationship. The focus is not simply on trade in
goods and services but also on developing wider forms of
economic co-operation such as joint ventures and the
exchange of technology.
This visit will complement our wider initiatives to open up
trading opportunities, including in the context of the GATT.
Ladies and gentlemen,
Uncertainties about the world economic situation have
introduced a new element into the design of economic policy
in Australia. But we need to view it in proper prospective.
I take some heart from the fact that President Reagan has
made a start in reducing the US fiscal deficit and that he
and his Cabinet colleagues are firmly opposed to
protectionism. Both attitudes are fundamental to the longer
term solution.
I also take great comfort from the fact that Australia faces
this period of uncertainty with three major advantages.
First is a track record of having weathered a series of
storms and of having found timely and correct solutions.
Second is an economy which is increasingly competitive,
dynamic and export oriented and thus more able to cope
with changing world conditions.
And third it is my belief that in the last Federal election
we have re-written the political/ economic agenda. Ne~ yer
again, I believe, will any party be able, with any hope of
success, to go to the Australian people with Alice in
Wonderland programs that neither add up nor address the
realities of the economic challenges facing our country.
The day of the bribe and of cheap rhetoric has gone what
is required is performance or credible alternatives.
This combination gives us a firm foundation on which to
build Australia's long term economic prosperity.
it is a com~ binationl which provides a solid underpinning for
business to plan with confidence.