PRIME MINISTER
CHECK AGAINST DELIVERY EMBARGOED UNTIL DELIVERY
SPEECH BY THE PRIME MINISTER
PREMIER'S BUSINESS LUNCH
ADELAIDE 17 APRIL 1989
John Bannon,
Neal Blewett,
Ladies and Gentlemen.
Back on 2 March 1983, in the final week of the life of the
Fraser Government, the then-Treasurer John Howard issued one
of his last press statements before the election.
In the light of the achievements of last Wednesday's
Economic Statement, it is worth recalling today the words of
that near-final ministerial utterance of Mr Howard.
Speaking of the Accord that had just been reached by the
Labor Party and the Australian Council of Trade Unions,
Mr Howard said that it was " abundantly clear" that Labor's
prices and incomes policy was " in tatters".
So he offered this analysis: " It ( the Accord) offers no
hope for the unemployed. It does not form a viable basis
for a realistic approach to wages".
It is hard to imagine any commentary more flawed than that,
or any prediction more erroneous.
The truth is that, under the Accord, Australia has had an
unparalleled period of wage restraint and unparalleled
growth in employment.
From 1983 to December 1988 real unit labour costs have
declined by during the same period 1.3 million new
jobs have been created a growth rate twice that of the
OECD and four times the rate Mr Howard and his colleagues
achieved when they were in office.
The Economic Statement that Paul Keating delivered on
Wednesday provided further proof that the Accord is
delivering achievements of lasting value for all
Australians.
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2.
It delivered a package of responsible wage increases,
affordable tax cuts and equitable new family payments a
mix that will take Australia into the last decade of the
century with a more prosperous economy and a more just
society. This is the Accord that Mr Howard dismissed as offering no
hope for the unemployed and no basis for a realistic wages
policy. But I suppose we should at least acknowledge his consistency
about the Accord.
Throughout the last six years, as all the evidence
accumulated to disprove the validity of his assessment, he
continued with admirable consistency though little insight
to dismiss and disparage the Accord.
He does it still, Only last Thursday he castigated the
Government for its so-called " ideological strait-jacket
imposed by its roots in the Labor movement."
Let me make it perfectly plain that I am proud of Labor's
links with the trade union movement not for any
ideological reason but because of what those links, as part
of a broader consensus approach by the Government, have been
able to achieve in the interests of all Australians.
So let's put John Howard's rhetoric to one side and look at
the facts.
What is the evidence of the success of the Accord?
First, as I have said, it has yielded sustained wage
restraint which has been directly responsible for record
employment growth.
There are now about 1.3 million more Australians in
employment than there were when the Accord was forged.
I point out that around 90 per : cent of those 1.3 million
jobs have been created by the private sector.
The unemployment rate has fallen by four percentage points.
industrial disputation has fallen by 59 per cent.
And the private sector has lifted its investment to a
year high relative to GDP.
Second, the Accord has generated real improvements in our
international competitiveness. Australia is now more
competitive than it was in 1984-85 when measured on a
consumer price index basis.
At the same time, it curbed what would otherwise have been
the inflationary consequences of import price increases
caused by the 1985-86 decline in our overvalued dollar. 6395
In other words, the Accord allowed Australia to adjust to
the collapse in our terms of trade in 1985-86 without
recession. I
Third, the Accord has seen a dramatic improvement in the
quality of social justice in Australia.
we have seen even before Wednesday's Statementunprededented
improvement in family assistance, targeted to
those members of the community who need it most.
We have seen even before Wednesday's Statement historic
reforms of the taxation system: cuts in personal tax, the
taxation of capital gains and the effective pursuit of tax
avoidance and evasion.
Fourth, the Accord has allowed the nation to address the
issue which as no other holds the key to long-term
sustainable prosperity: productivity.
With our tripartite'reforms of outdated work practices, with
our program of reform of the schooling and job skilling of
our students and workers, and with the fundamental reforms
being achieved in the restructuring of the nation's
antiquated awards system, we are seeing lasting improvements
in the nation's human capital our greatest resource, our
people. Jobs; adjustment; social justice; productivity improvements:
that's what the Accord has delivered and it is delivering
still.
To put these achievements~ another way, the Accord has
provided the principal means of surviving the two great
challenges to the nation's economic security that have
arisen in the 1980s.
in 1983 it pulled Australia out of the worst recession we
had endured in 50 years. we turned around that unique
legacy of the Fraser/ Howard years double digit
unemployment combined with double digit inflation and we
laid the basis for recovery and restored prosperity.
In 1985/ 86, the Accord allowed us to weather the collapse in
our terms of trade which stripped some $ 11 billion off our
national income.
Ladies and gentlemen,
Now, as Wednesday's Statement proved, the cooperation
between the Government and the trade union movement has
offered us the means to survive the third great challenge of
the 1980s: the excessive economic buoyancy that has
followed the stock market collapse of October 1987.
6 3 J
in the face of virtually unanimous expert predictions to the
contrary, Australia, and most of the industrialised world,
have seen since that collapse the emergence of boom economic
conditions. But in addition, and while we have flat consumption growth
and flat public demand, we now have business investment at
its highest level relative to GDP than at any time in the
last 40 years.
Housing starts are running at their highest levels since the
early 1970s.
Employment growth has been exceptionally strong.
A brief history lesson demonstrates that these current
conditions pose a real challenge to economic management in
Australia. over the 1970s and 1980s we have had three periods of
significant boom conditions.
in 1973 overtime hours worked increased by 30% and a net
balance of 27% of firms responding to the CAI/ Westpac Survey
of Industrial Capacity were operating at above normal
capacity utilisation. We then saw wages increase by 72% in
the next 3 years, prices grew by 55% and unemployment
increase from 2 to
In the early 1980s, capacity utilisation again tightened and
overtime hours worked increased by 22% in December 1981. In
the two years to December 1982 wages increased by 27%,
prices by 19% and the unemployment rate doubled in two years
as the economy went into recession.
Today, capacity utilisation and hours of overtime worked are
running at the highest levels since 1973/ 74. Yet wages
growth is running at around 7% and we have just reached an
historical agreement with the ACTU to have 6 1/ 2% wages
growth next year.
in other words, where previous Governments failed to cope
with growth, this time we will get it right.
Continued moderate wages growth through this boom period
will prevent the spurt in inflation, the devastation of
company profits and the unemployment that, to the cost of
all Australians, accompanied the previous booms.
The increased incomes that will flow to Australian workers
in 1989-90 as a result of the Economic Statement will come
from tax cuts and family payments from the Government, paid
for by past declines in the size of Government, and from
moderate wage income delivered through award restructuring.
They will not come as past wage increases have, as direct
costs to employers, and therefore as costs to jobs and
investment.
That is the result of the Accord which the Opposition Leader
disparaged in 1983 as " not form( ing) a viable basis for a
realistic approach to wages".
Ladies and gentlemen,
The truth of short-term macro-economic management, whether
it be in Australia or elsewhere, is that there are three and
only three policy arms available for Government use: wages
policy, fiscal policy and monetary policy.
Some have said there should be a different mix of policies.
Let's look at the facts.
Wages policy today, as I have illustrated, is as tight as
possible. Wages growth of 6.5% in 1989-90 to accompany our
investment surge is an unprecedented result.
Last Wednesday night's tax cuts have effectively lowered the
corporate wages bill.
Anybody seriously entertaining the possibility of a lower
wages outcome for 1989-90 is living in fairyland.
Then there is fiscal policy.
Our Budget surplus in 1987-88 was the first in 35 years.
This year's surplus will be $ 5.5 billion. Next year's,
after paying for the tax! cuts, will be at least as high.
Real Commonwealth Government outlays will, after next year,
have declined for four years in a row.
The result of this restraint is that the entire Australian
public sector will make no call on foreign savings this
year, and no call next year.
The Liberals' policy is also for a zero Public Sector
Borrowing Requirement, though in some 30 years of post-war
Coalition rule they never came close to it.
When they left office in 1982-83, the Public Sector
Borrowing Requirement was 5.9% of GDP. Now we have brought
it down to zero.
If today the Opposition wants to suggest a tighter fiscal
policy, they have the responsibility to tell the community
where they would make the necessary cuts.
Mr Howard's policy, enunciated again in his reply to the
Economic Statement on Thursday, is dishonest: he pretends
cuts can be made without specifying where or how.
Last Thursday he did not nominate areas for spending cuts.
He simply asserted Government can do what it does now, more
cheaply.
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The truth is that further large cuts will cut services.
This would either transfer the bill from Government to
individuals, as would happen if health outlays were cut, or
it would just mean fewer community services: fewer
university places, less defence equipment or lower
unemployment benefits.
Let's not have policy discussions that assume that cuts can
be made in Government outlays without cost.
It would be easy if they could.
But, I repeat, they cannot.
By any measurement, we have the tightest fiscal policy in
years. It is nonsense to suggest that our policy mix
sees us lax in the fiscal area, or that billions of dollars
in savings can be easily found.
The real problem prompting the debate about policy mix is
Australia's current high interest rates.
Australia's monetary policy is tight as it plays its
appropriate balancing role in the economy. The economy is
growing too fast and needs to slow.
Monetary policy has the quickest effect.
But while fiscal and wages policy are at unprecedented
levels of tightness, the same is not true of monetary
policy. Today go day bill rates stand at around 17.5%: in
April 1982 they hit 22%.
Our current monetary stance will stay tight until the
economy comes off the boil: it will not be released until
then, but it will not be held a notch tighter than it needs
to be.
So reviewing these three arms of policy wages, fiscal and
monetary the truth is that no policy mix other than the
present would suffice to take Australia securely into the
1990s. The Liberals have no wages policy.
Their fiscal policy is at best a copy of ours.
Their resultant monetary policy such as it can be
determined from the contradictory statements that emerge
from their three economic spokesmen Howard, Peacock and
Hewson would in the current climate send rates through the
roof.
There is no comfort for Australian families there. 9
Ladies and gentlemen,
If there is one single characteristic of the Hawke
Government that has been evident throughout our entire
period in office it is our proven capacity simultaneously to
achieve economic reform and social justice.
And if there is a single characteristic that distinguishes
Labor from the conservatives it is the complete incapacity
of our opponents to grasp either of those fundamentals.
Let me illustrate what I mean.
The central task of this Government has been to achieve the
reconstruction of the Australian economy to reduce our
vulnerability to the fluctuations of world commodity markets
by diversifying our export regime; to build on our strengths
as a commodity producer by developing the capacity to
produce and export manufactured and service goods.
In the short-term, that has required the exercise of
discipline. It has meant, for the public sector, real reductions in
spending and, for the wage earner, real wage restraint.
What has to be understood is that under Labor since 1983,
these disciplines have been achieved in tandem with a new
attention to social justice issues.
The Accord Mark 1 balanced the requirement for real wage
restraint with the provision of increases in the social
wage; the exercise of real wage restraint by employed
members of the workforce created the conditions whereby the
unemployed found jobs in unprecedented numbers.
The exercise of budgetary restraint has created the
conditions for increased expenditure on social justice
programs, especially those targeted to the less-well off.
Indeed, we have achieved a massive reorientation in spending
priorities of the Commonwealth.
Spending on social justice programs as a proportion of the
Commonwealth's total spending has risen from about 50 per
cent to about 58 per cent since we came to office.
It is in this context that the latest reforms have to be
seen for what they are a coherent package, in which the
essential momentum of economic reform is maintained, through
the continued exercise of fiscal and wage restraint, while
at the same time achieving major reforms for the less
well-off.
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Among those reforms are increases in Family Allowance of
$ 9 per week for each of the first three children, and $ 12 a
week for each subsequent child. A two child family will
receive an additional non-taxable $ 5.25 a week, a 41%
increase, from family assistance alone.
The Government has met its commitment to eliminate the need
for children to live in poverty. It has met the family
assistance benchmarks six months ahead of the envisaged
timetable. For the first time, we have indexed family allowances, the
Dependent Spouse Rebate and other family-based payments.
And we have brought forward by 12 weeks the time taken to
index age pensions, and we have ensured that age pensioners
who receive income within the pension income test free area
pay no tax at all.
Let me make this final point about the achievements of the
Economic Statement.
John Howard has claimed the benefits of this package will be
eroded by inflation or higher interest rates.
He is wrong.
Since there will be no wages explosion,, there is no reason
to expect increased inflation.
There is also no reason why interest rates should increase
as a result of this package.
The tax cuts are already paid for by smaller Government.
Commonwealth outlays as a percentage of GDP have fallen from
31% in prospect for 1983-84 to 25.5% in 1988-89. The
Government will be making no new borrowing this year to
finance the cuts. The PSBR will be zero this year. And,
even after paying for tax cuts which more than offset the
loss accumulated through bracket creep, it will be zero next
year. Ladies and gentlemen,
I have concentrated today largely on domestic issues.
But I would be doing a disservice if I cast this report
purely in domestic terms, as significant as all these recent
initiatives are.
I want to close by turning your attention abroad.
Because it is in the international economy that the success
of Australia's domestic reforms will ultimately be tested.
Behind everything we have done since our first day in office
has been the need to create an economy not only more
prosperous and more equitable in domestic terms but also
more able to compete on world markets. ( 3 401
For it is only through successfully taking on the world, and
winning, that we will be able to secure our domestic
prosperity. In particular, it is only by the greater enmeshment in Asia
of a diversified, productive, efficient, competitive
Australia that the prosperity of individual Australians will
be. best protected and enhanced.
It has been a truism of political debate in this country for
many years at least since Britain's entry into the
European Common Market that our future lies in Asia.
But it is only since 1983 that we have taken the necessary
steps to act on that truth to prepare ourselves to exploit
the unique opportunities presented to us by our location
within the world's most economically dynamic region, the
Pacific Rim economies.
That is why, since coming to office, we floated the dollar,
deregulated the financial markets, liberalised foreign
investment, achieved unprecedented cuts in tariffs,
terminated the two airline agreement, deregulated crude oil
marketing, allowed effective competition in the provision of
telecommunications services, and lowered company tax rates.
it is why, in May, we will address problems in coastal
shipping and on the waterfront as part of a comprehensive
range of announcements aimed at achieving further reform of
our micro-economy.
A principal focus of our diplomatic activity including the
visits abroad that I make as Prime Minister is
increasingly to protect and enhance our trading interests,
especially through upholding the multilateral trading system
GATT. In August 1986 Australia convened the Cairns Group of Fair
Trading Nations in order to ensure that the current Uruguay
Round of GATT negotiations effectively liberalises the rules
governing world trade especially governing trade in
agricultural commodities.
we would all be the losers if GATT were to fail and if the
principles of free trade were to be lost in a scramble for
protectionism. After the Montreal Mid-term Review stalled last December, it
seemed as if we were indeed facing, if not the end of GATT,
then certainly the beginning of the end.
It was a sobering prospect. Fortunately, thanks in very
large part to the activities of the Cairns Group, a major
breakthrough was reached recently.
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On agriculture, the GATT parties have essentially accepted
the thrust of the major Cairns Group proposals that I tabled
in Geneva on behalf of the Cairns Group in 1987.
The result of that agreement is that Australian farmers can
look forward to improved returns. The prospects for
Australian rural exports are infinitely brighter in a world
where the likelihood of an agricultural subsidies war
between the EEC and the US is removed, and where the unfair
trade barriers restricting Australian exports to those
economies and elsewhere are steadily removed.
While we will need to monitor the implementation of the
principles reached in this negotiation, I believe we can be
optimistic for the future of efficient agricultural
producers such as Australian farmers.
Ladies and gentlemen,
The proof continues to accumulate.
For six years the Federal opposition has neglected the real
issues and fudged the questions that need answering.
Luxuriating in the comfort of not having actually to do
anything, they continue to offer suggestions that, if
implemented, would devastate the Australian economy and
Australian families.
on the other hand, the Federal Labor Government, steadily
and responsibly, is creating the conditions for sustained
economic prosperity.
Wednesday's Economic Statement presented a package of
measures that fulfilled a key promise to the Australian
people.
We said that those who have suffered the heaviest burden of
restructuring those families that have made the sacrifices
will see real improvements in their disposable incomes
this year.
That relief is not extended as a give-away that will
jeopardise future economic recovery.
It is provided in a way that will preserve the gains we have
already made and that will ensure, as we enter the next
decade, that we will build on those gains and we will
continue to create a more prosperous and a fairer Australia. 6 403;