CHECK Ar. AINqT DELITVERY EMBARQOED UNTIL. DELIVERY
SPEECH BY THE PRIME MINISTER
AUSTRALIAN FINANCIAL REVIEW
POST BUDGET DINNER
SYDNEY 22 AUGUST 1990
Ladies and Gentlemen,
It's a pleasure once again to address the Financial Review's
post-Budget dinner.
Even by its own high standards, the Financial Review has been
playing a significant role lately in public policy debates,
particularly in the area of telecommunications and shall we
say a strikingly informative role. I can't say I'm totally
delighted about that but I presume your circulation manager
is over the moon.
I daresay there were some in this audience who believed that
the March Federal election would be followed by John Hewson' s
first budget rather than Paul Keating's eighth.
It wa a tight election campaign just as we said it would be.
But victory was always within our grasp. The conservatives had
again loaded up their saddlebags with the lead of disastrous
policies and indifferent leadership.
But the enduringly significant reason we won in March is not
because 1he= were so hopeless; we won, and we won well, on ou~ r
merits. We had the right ideas, the clear strategy for the nation, and
the decisive leadership to secure Australia's future in the
1990s and beyond. The Australian people accepted that, and
their mandate to us for continued reform was positive and
explicit. Over recent weeks, and culminating in last night's Budget, we
have shown that their judgment was totally accurate and their
faith in us was completely justified.
We did this in two ways:
First, by continuing the hard work and discipline of seven
years to get the right macro-economic settings to secure
Australia's future while delivering on our campaign
promises; and
Second, on those firm foundations, by delivering immediate
and substantial instalments on a sweeping reform agenda
for our fourth term in office.
Tonight I want to address each of these in turn.
And I say at the outset, in discussing the macro-economic
aspects of the Budget, that I am under no illusions about the
significance of our inflation, current account and debt
problems. Equally, I am convinced that the policies we have got in place
the only ones that can remedy those difficulties are now
doing so effectively.
The imbalance between demand and supply that could undermine
the long-term viability of the Australian economy has been
removed. Demand is falling as a result of the tight application of
fiscal, wages and monetary policies while our supply response
is being improved through the high levels of education,
training, employment and investment we have created, and
through our sustained and effective attention to micro-economic
reform. There are clear signs that this dual approach is working.
Without labouring the points, let me briefly give you some
statistical evidence for that.
last financial year, Gross National Expenditure
increased by less than 3 percent compared with more
than 8 percent the previous year.
In the same period, growth in Gross Domestic Product
has also slowed, although importantly not as much as
demand.
Accordingly, net exports made a positive contribution
in 1989-90. In the June quarter 1990 net exports
contributed nearly 2 percentage points to growth;
imports fell by 10 per cent.
Employment growth is easing, but it is not
collapsing. Employment in fact grew marginally in
the three months to July, and the only reason
unemployment has risen is because the participation
rate has reached record heights a vote of
confidence by ordinary Australians in the prolonged
resilience of the labour market under our policies.
Business investment has eased back to more
sustainable levels, but will this year remain at
around 12 per cent of GDP still considerably higher
than the average of the previous two decades.
Inflation has been on a downward trend for the last
four quarters, falling from a quarterly rate of 2.3
per cent in September 1989 to 1.6 per cent in June
1990.
So the economy is responding well to our existing policies
aimed at lowering demand and enhancing supply. Care is still
required, of course, as we manage the line between demand
restraint and avoidance of recession.
But there is good reason to be confident that we will make
further progress in the coming year confidence borne out by
the Budget forecasts of a 6 per cent inflation figure and a
drop in the current account deficit of around $ 3 billion to
per cent of GDP.
Exports are forecast to grow at 7.5 per cent while imports will
fall 3 per cent. That means all growth is coming from net
exports precisely the goal we have been working to achieve.
Given this, our policy settings are thoroughly appropriate to
the times.
First, monetary policy has been eased, resulting in a fall of
about four percentage points in professional rates since early
this year.
Second, wages policy remains tight under the Accord with wage
rises through this financial year lessened by our ability to
deliver further tax reductions.
Third, in fiscal policy, this Budget is the third in a row in
which the public sector as a whole makes no demand on
Australia's scarce savings.
At $ 8.1 billion, the Commonwealth Budget surplus is our fourth
consecutive surplus. They are the only four Commonwealth
surpluses achieved in the nearly four decades during which
comparable records have been kept. This surplus is sufficient
to offset all the borrowing requirements of our business
enterprises, and of State and local government deficits.
Those who seek further resources from the Commonwealth need to
understand better that in this sense, the surplus is already
being used. It is not available to spend on some other
purpose. It follows, too, that the public sector borrowing requirement
should remain at zero or better for as long as our current
account deficit remains unacceptably high.
The rigour and success of our policy approach is also reflected
in the Forward Estimates published in this Budget.
Over the last few years, we have achieved a massive reduction
in Government outlays from a peak of 30 percent of GDP in
1984-85 down to 23.5 percent in this Budget. This brings the
size of Commonwealth outlays as a share of the economy back to
the level of 1974 no mean feat given the less buoyant
economic circumstances that prevailed while this Budget was
framed. In three years' time, the outlays to GDP ratio is forecast to
fall to 21.6 per cent the level of the 1950s.
The Treasurer made this point forcefully last night and it
needs to be firmly reinforced here: that reduction in
Commonwealth spending does not reflect any reluctance or
incapacity on the part of this Government to meet newly
emerging social priorities.
Commonwealth spending is shrinking in relation to the total
size of the Australian economy. But we are delivering real and
effective assistance to ordinary Australians in areas that
either did not exist two or three decades ago or, if they did,
were much less comprehensively served:
child care, aged care, the family allowance supplement,
schools, universities, the environment.
We have made Australia both a fairer and a better place to live
while meeting the imperatives of our broader economic
circumstances. This Budget puts Australia further down this path.
We fully delivered on our election promises to cut income tax
from 1 January; to begin delivering improved services to outer
suburbs; to devote further effort to the protection of the
environment; to establish the new network of Cooperative
Research Centres.
As we said during the campaign, all our new policy initiatives
were fully funded.
For the future, let me make these two fundamental points.
First, after years of exhaustive scrutiny and restraint, most
government programs now reflect our reading of the services and
programs the community expects Governments to provide. The
need, and the capacity, for continued big real cuts in outlays
has largely gone.
We have now reached the point where further substantial real
cutbacks would require us to tell the most disadvantaged in the
community that they must bear a greater share of the overall
economic adjustment burden than anyone else. This position
could never be reconciled with the social justice objectives of
my Government.
Second, and counterbalancing the first, the Government retains
the full capacity to make fundamental reforms which yield long-
-term efficiency gains and savings. The reforms announced last
night in relation to programs for the disabled and to
pharmaceutical benefits, and the reform of unemployment
benefits announced during the election campaign, represent
fundamental and durable advances in social justice. They are
very sound public policy.
In all those cases we have secured significant social policy
reforms and substantial longer term benefits to taxpayers and
the economy as a whole.
That combination is of course the abiding hallmark of Labor's
continuing reform in social policy.
It is no coincidence that these reforms arise from careful,
thoughtful and compassionate reviews of the relevant policy
areas. So it is with justified anticipation that I point to
our announcement of forthcoming reviews in housing and health,
and pilot projects in access to services in disadvantaged
areas. These reviews will yield important harvests in years to come:
improved services for individual Australians, and improved
targeting and efficiency.
Ladies and gentlemen,
One of the fixed principles this Government has adopted in
setting economic policy is that the annual budget process
should not necessarily or automatically be thought of as the
sole vehicle of decisions.
We've always had the view that if a decision needs taking now,
we will take it now for example, in a February or May
Economic Statement. In the same way, if an issue isn't ready
for decision, we won't risk getting it wrong by needless haste.
That's the right context in which to see the telecommunications
issue.
Those who express dismay that telecommunications wasn't
resolved in the Budget are falling victim to the fetish that
process is more important than outcome.
They ignore the fact that when we do conclude this issue, after
the Special Conference next month, it will be a fully
considered and widely understood decision.
What we are doing on telecommunications is what we have always
done in this Government we are conducting a debate that will
yield an effective and enduring solution for the nation's
welfare as a whole.
That solution will be guided by these objectives:
the creation and guarantee of competition in the
telecommunications system
the maintenance of a fully publicly owned
telecommunications entity; and
the guarantee that ordinary customers will benefit
from the new structure including through the
protection of Community Service Obligations.
The debate is taking place within those guidelines; the outcome
that will result will stand in the sharpest possible contrast
to the conservatives' undebated prejudice simply to sell off
Telecom.
In the meantime, as this Budget shows, we're getting on with
other critical tasks of micro-economic reform in the
pharmaceuticals industry, in petroleum taxation and in the
per cent increase in funds to get efficient and effective
national regulation of companies and our securities markets off
the ground.
Let me add two points about the new Australian Securities
Commission. First, as well as slashing a lot of frustrating red-tape, the
ASC will also strike at the deeply disturbing evidence that has
been emerging about corporate malpractice and abuse. These
practices have brought Australia's financial markets into
disrepute. The ASC is equipped with the resources to use civil remedies
and has the full blessing of my Government to do so if the
corporate sector is not able to get its own house in order.
Legal and moral responsibilities to shareholders and creditors
are not to be evaded without penalty.
Second, the creation of the ASC demonstrates the more general
need for better coordination of State and Federal
administration. The old NCSC was hamstrung in the end,
fatally by the delays and difficulties entailed in the
requirement for any reforms to be approved by seven parliaments
around the nation.
In this area, duplication and inefficiency has now been
resolved by the establishment of a new Federal authority. In
other cases different solutions will be necessary, and as I
said in my speech on Federalism last month it is imperative, as
we approach the centenary of Federation, that we find such
solutions.
The process of reform is to be initiated at a special Premiers'
Conference to be held at the end of October.
I have established a Commonwealth-State Relations Secretariat
within my Department to provide continuing support, for which
million has been provided in the Budget.
But this is a task which should not be left solely to the
politicians. I have said, for example, that I would be
prepared to seek a constitutional amendment to achieve fouryear
terms for the Federal Parliament if there is bipartisan
support for the proposal.
If the corporate sector genuinely believes, as I think you do,
that three-year terms are a handicap to efficient business,
then it is up to you to make your views known, to exert
pressure on politicians to see that the referendum does take
place, and to give it your vocal support when it does.
Ladies and gentlemen,
In the months since the election, while preparing this Budget,
my Ministers and I have been generating the outline of a
sweeping reform agenda for the 1990s.
Looking forward from last night we have outlined the broadest,
the most far-reaching, the most exciting strategy for change
that we have contemplated at any stage since we were elected in
1983. It is an agenda for reform of Australia's airline and
telecommunications industries, and for further reform of the
country' s manufacturing industries.
It is an agenda for reform of the nation's railway and roads
systems. It is an agenda for reform of Commonwealth-State relations and
removal of the duplication of government services.
It is an agenda for social justice for disadvantaged people
living on the fringes of our urban sprawls and an agenda to
yield further fundamental reforms in health and housing.
It is an agenda for achieving ecologically sustainable
development by better integrating economic and environmental
considerations in our decision-making processes.
It is an agenda for the creation of a clever country through
continued improvements in education and training opportunities.
And, of course, it is an agenda for the stabilisation of the
nation's international indebtedness, while reducing inflation
and continuing to create new jobs for Australian workers.
The Federal Budget announced by Paul Keating yesterday delivers
a real instalment on every one of these extensive agenda areas.
At the same time, the Gulf crisis, coming after the spate of
critical developments in superpower relations, Eastern Europe,
the Asia Pacific region and, not least, the imminent business
end of the Uruguay Round, means that in foreign policy terms we
are as busy as we have ever been.
So there you have it: this Government displaying the energy
and determination to do precisely what we promised in the
campaign we would do to achieve great national goals:
a modern, growing economy, earning its income, paying its
way through exports to the markets of the world, reequipped
and restructured in its attitudes, its
institutions and its technology; and
a self confident and vigorous partner in the world economy
and in the economy of our region the region of the
future.
With the Government's eighth Budget, those goals are now
considerably closer at hand.