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SPEECH BY THE PRIME MINISTER
ADDRESS TO THE COMMITTEE FOR ECONOMIC DEVELOPMENT OF
AUSTRALIA
BRISBANE 15 MARCH 1991
Ladies and gentlemen
Three days ago I delivered to Parliament a major Statement
about the economic challenges facing this nation.
I spoke with three principal purposes:
First, in the immediate circumstances of the recession, I
saw it as my responsibility, as Prime Minister, to offer the
Australian people assurance and explanation: assurance that
our policies are bringing the recession to an end; and
explanation of how the transitory pain will yield
identifiable and enduring gain for the future.
Second, I wanted to announce a package of substantial new
measures directed to the fundamental task facing the nation.
The tariff cuts, the reduced wholesale sales taxes for
business, the business savings achieved through simpler
depreciation, the retraining assistance, the new support for
apprentices and the further initiatives in education and
research all these new measures I announced share one
overriding obj ective.
That objective I expressed in the title of my Statement:
Building a Ccompetitive Australia.
As such, these new measures continue and intensify the
reforms my Government has carried out in the past eight
years. They show once more our determination and capacity to take
tough decisions in the interests of the nation with a
steady commitment to our principles and values, and a steady
refusal to return to the old attitudes designed to set
Australian aclainst Australian.
The third purpose of my Statement was to reaffirm for the
Australian pe-ople the longer term economic goals to which we
aspire and to identify for all Australians their role in
achieving those goals.
Because it is vital in this process to understand that all
of us workers, employers and Government have essential,
and complementary, roles to play.
In the final analysis, the challenges ahead demand the
involvement of all Australians.
In content, the Statement presents new challenges for
Australian industry as it enters the final stages of the
winding down of protectionism particularly the TCF and car
industries.
One of the most pleasing aspects of the Statement is the way
in which, despite those tough implications, the message of
competitiveness is getting through.
There have been few tears shed for Australia's protectionist
past. Instead, there has been a general sense of preparedness for
the challenge ahead.
Broadly, Australians accept the message that protectionism
has made Australia a poorer nation than it would otherwise
have been; that tariffs have forced up the prices that
consumers and businesses have to pay for essential goods and
services; and that insulation from the challenges of the
world marketplace is no way to build world-competitive
industry, or to acquire the world's best technology, or to
adopt international best standards in our places of work.
To date, the main focus of reaction to the tariff cuts has
been on their implications for the import-competing sector.
Today, I want to shift the focus to include Australia's
exporters, and to discuss how they are advantaged by these
and other changes in the 12 March Statement.
Let me start by presenting you I hope, not burdening you,
with some figures about Australia export performance.
Australia's mining sector has consistently been a strong
export performer for many years. But an interesting story
is told by the export figures for our agricultural and
manufacturing sectors.
In the second half of the 1970s, the volume of agricultural
exports grew by nearly 9% a year. But since then
agricultural exports have marked time. Despite consistent
large productivity gains, our farmers exported the same
volume of goods in 1989-90 as they did ten years earlier.
over the same periods, our manufacturing exports grew
consistently and, indeed, exponentially by 1.4% a year in
the second half of the 1970s, by 4.5% a year in the first
half of the 1980s and by nearly 13% a year in the second
half of the 1980s.
What explains this extraordinary divergence between
agriculture, our traditional strong suit, and manufacturing?
First, it is not due to complacency or lack of efficiency by
our farmers. They have been and remain among the most
efficient in the world.
The problem lies elsewhere: in the increasing corruption,
over these years, of world agricultural trade largely by
the European Community and to a lesser extent by the United
States and Japan.
The combined farm subsidies of these three economies have
recently averaged more than $ 300 billion a year. And this
for a sector which produces only about 3% of their GDP.
I have had the pleasure of addressing CEDA audiences on this
issue before, and so I know you agree with me in recognising
the importance of the Uruguay Round trade negotiations in
rectifying these distortions.
A successful outcome to the Uruguay Round by which I mean,
an agreement by the Europeans to substantial cuts in their
farm protection is essential for the continued health of
the world trading system and, therefore, the world economy.
It will ensure that efficient farmers, like our own, are
rewarded, not penalised, in the world marketplace.
While GATT has been completely ineffectual so far in
breaking down trade distortions in agriculture, it has been
very successful in substantially reducing manufacturing
protection. Over the last forty years, tariffs on manufactured goods
have declined consistently and the volume of world trade
in manufacturing has dramatically grown.
So these international factors explain part of the divergent
export performance of our farms and our factories.
There are critically important domestic factors at work too.
Just as agricultural production is now corrupted by the
pernicious subsidies that cosset the farms of Europe, so,
within Australia, manufacturing production was distorted by
the tariff walls that grew up around this country in the
1950s and 1960s.
It was to remedy those distortions, and the complacent
attitudes to which they gave rise, that this Government set
about with determination to dismantle the tariff walls and
to expose Australian industry to the challenges of the
world. The results have been dramatic.
Manufacturers no longer have to tolerate the extra costs
imposed on their production process by the burden of
tariffs.
Contrary to the expressed fears of the pro-tariff lobby
groups, the Australian manufacturing sector now employs
more, produces more, and exports more than it did before
and in each case, the rate of growth has been faster here
over the past five years than the average of the OECD
countries. If I may burden you with a few more figures, let me provide
a measure of those increases.
Using 1985 as a base measure of 100, manufacturing
employment in the OECD economies rose, from 1985 to 1989, to
101. In Australia, using the same base, manufacturing employment
rose to 109.
In manufacturing production, Australia increased to 121,
just ahead of the OECD, at 120.
In manufacturing exports, the OECD went from 100 to 131;
Australian manufacturing exports went to 179.
So the lesson is surely this.
Against a background of falling tariffs world-wide and in
Australia, Australian manufacturers are becoming more
competitive. We are becoming more successful in winning
world markets.
This is one important reason why my Government took the
decision to cut tariffs further.
Taking into account these latest cuts, my Government will,
by the end of this decade, have slashed assistance to the
manufacturing sector by more than three-quarters the
nominal rate will fall from 13 per cent to 3 per cent, and
the effective rate from 22 per cent to 5 per cent.
And because we are increasingly practising what we are
preaching, this decision will add further credibility to our
international campaign to win lower agricultural subsidies.
We can argue with greater force that our trading partners
should abandon their own counter-productive distortions of
international trade
No matter how much our trading partners might flout
international trading rules, lower Australian tariffs mean
reduced input costs for our own businesses and thus a better
Australian export performance.
So ultimately, lower tariffs advance our own self-interest.
To give one example, the food processing industry an
industry in which we have an obvious competitive advantage
to add value will become more competitive as a result of
our decision to cut substantially the tariff on sugar.
A further example is the duty reductions on minerals
processing equipment not made in Australia, which will
reduce the cost of that equipment to the minerals processing
industry thereby enhancing its competitiveness.
In the same way, the taxation changes I announced simpler
depreciation and lower wholesale sales taxes will also
lower business input costs.
This is not the place to make extended partisan comment, but
it is absolutely relevant to note that in the more than four
decades since 1949, it has only been conservative
Governments that have built tariff walls and enlarged them
and it has only been Labor Governments that have dismantled
them. Ladies and gentlemen,
Australia's relatively high inflation for much of the past
two decades has been a major factor undermining the
competitiveness of our exporters and potential exporters
High inflation has brought higher interest rates and a
higher cost of capital. It is no coincidence that the most
successful countries in the post-war era Japan and Germany
are noted for their low inflation
Australia now stands on the verge of a breakthrough to low
inflation. Inflation is currently running at lower
than the OECD average of and will fall substantially
over the course of this year.
We have the opportunity to put Australia on a low inflation
path. The combined effects of the tariff cuts and taxation changes
will help us bring inflation, and hence interest rates,
down. In his response yesterday to my Statement, the Opposition
Leader threw down what he called two challenges. We do not
know much in detail about the Opposition's prescriptions for
building a competitive Australia, but we do know, with
complete certainty, that these two challenges would spell
disaster for Australia.
He proposes the twin, and related, follies of a wages freefor-
all and a consumption tax.
The primary effect of a consumption tax would be to boost
inflation.
To the extent that a consumption tax would have any
offsetting advantages in terms of reduced indirect taxes on
business inputs, our decision to widen exemptions for
wholesale sales tax has substantially met that need.
At the same time, our route is not just non-inflationary, it
is positively deflationary that is, it delivers second
round benefits in terms of lower inflation and a lower cost
of capital.
By contrast, the consumption tax would cut taxes on business
inputs but raise the cost of capital through higher interest
rates at the same time, with the possibility that business
would be worse of f.
This possibility is made a probability by the Opposition's
proposal simultaneously to deregulate the labour market.
That could only make inflation very much more difficult to
control and for evidence we need look no further than the
experience of the United Kingdom over recent years, where
poor discipline over wages in a deregulated labour market
boosted wages growth and inflation into double figures.
Ladies and gentlemen,
I am sure you are familiar with the report which I
commissioned from Professor Ross Garnaut, Australla and the
Northeast Asia Ascendancy. That report highlighted the
enormous opportunities that await a more competitive
Australia through closer trading links with the north east
Asian economies the best performers in the dynamic Asia-
Pacific region.
Over the last four decades, the Asia-Pacific region has
experienced one of the most remarkable periods of sustained
economic growth in human history.
And the major factor underpinning that growth has been the
region's openness in trade.
In January 1989, I launched the initiative for the creation
of a new forum for Asia Pacific Economic Cooperation. APEC
has become a valuable means for regional economies to
achieve closer policy harmonisation.
It has also become a significant voice in the global debate
about the Uruguay Round. An APEC ministerial-level meeting
last July issued a strong declaration in favour of a
substantial and timely outcome to the Uruguay Round.
Australia has already taken many steps along the road to
closer enm~ eshment with these economies, and our tariff cuts
will take us further.
My Statement also announced that Austrade's activities would
be refocussed towards Asian markets. In addition, we will
create a new program of fellowships so that Australian
business men and women and recent graduates can get direct
working experience in the Asia Pacific region.
Let me quote the concluding paragraphs of Professor
Garnaut's article in The Aue of Wednesday last.
" We have watched the emergence of internationallyoriented
industrialisation in many countries in east
Asia over the past two decades. Looking at that
experience, the success that has been emerging recently
in Australia, the favourable development in the macroeconomic:
environment, and the commitments in this
Statement, the transformation [ of the Australian
economy towards export-oriented manufacturing] is
likely to proceed at a pace that surprises most
Australians. " It wil,. take most of this decade in the best of
circumstances. We could yet make big mistakes,
including omission of efficiency raising reforms. But
the odds; now favour the emergence of an internationally
oriented, productive Australian economy within a short
enough time for most of us to enjoy it."
I can only adid: my Government is determined to ensure that
this increasingly short-priced favourite romps home.
In saying that, I want specifically to acknowledge the
qualification Professor Garnaut inserted in his prediction:
the mistake of omitting efficiency raising reforms.
None of you wrill have missed the fact that much of the
commentary since my Statement has centred on the pace of
micro-economic reform within Australia.
Let me tackle that issue head on.
This Governmetnt has an unshakeable commitment to a continued
rapid pace of' micro-reform.
We reject the! notion of an explicit " nexus" between cutting
tariffs and reforming the micro-economy. The tariff cuts I
announced were entirely appropriate and should not have been
delayed by any suggestion about the pace of micro-reform.
At the same time, micro-reform is already proceeding at a
rapid pace, according to schedules that have been set and
stringently applied.
As I said on Wednesday at the National Press Club, we put
micro-economic reform on the political agenda of this
country and we have stayed ahead of the game ever since. We
were the first to identify the bottlenecks and start to
clear them. We have won the cooperation of those involved in
making the reforms work, and we have set tight timetables to
achieve them.
As a result, we have seen more reform in the last eight
years than had been seen in the previous eighty.
And in 1991 alone we are pursuing an agenda of reform
covering the waterfront, shipping, telecommunications,
domestic aviation, rail freight, roads, business regulation,
pro-competitive legislation, and workplace reform all
without significant industrial disruption or a wages freefor-
all.
With all this reform underway, it would have been foolish to
have held back from further tariff reductions.
However, this needs to be clearly understood.
We do recognise that the new round of tariff cuts will
continue to expose Australian business to international
pressures, when they come into effect from 1992-93.
I can assure business that as this takes place, we will
continue to do our part to meet that challenge through
continued micro-reform.
The current reform targets will be met, on time, and we will
initiate further reforms, further timetables, to ensure that
we meet the challenges of an Australia emerged from behind
the tariff walls.
Our commitment will continue into and beyond 1992-93,
parallel to our commitment to continue reducing tariffs.
It is true that 1991 sets a high-water mark for
micro-reform.
We can expect that high water mark will be matched and
surpassed in the future.
This is entirely consistent with the sentiment underlying
the 12 March Statement, in which I said, " We need the habit
of adaptation because the lessons of international
competitiveness must be constantly learned and re-learned."
Ladies and gentlemen,
I said at the outset that the challenges facing Australia
were challenges for all Australians.
Of course, government has the responsibility to lead by
setting the right framework. And we will do that.
But the framework alone will not be enough.
The decision to lower tariffs will not, by itself, lead to a
stronger export performance. The opportunities it presents
will not automatically be taken up.
What will be required is a preparedness by individual
Australians managers, investors, employees, consumers to
take up those challenges.
As I have said, we are not only about achieving reform of
long-standin institutions of our economic landscape but
just as importantly and perhaps much harder the deep
seated attitudes that have accompanied them and given them
meaning. May I conclude by saying most sincerely to you that in
talking to the members of CEDA I could not be talking to an
organisation more attuned to the realities of which I speak
or more committed to ensuring that it will play its part in
meeting these great challenges and realising the vast
potential of this nation.