TEL: 7. May. 93 14: 31 No. 004 P. 01/ 07
' Asr zic 4"
PRIME MINISTER
SPEECH BY T11 E PRI MN' ~ 1N ISTER, TitE [ ION P J KE~ ATING, Mip
ADDRESS TO illlEAUSTRALIAN MINING INDUSTRY COUNCIL
ANNULAL DINNErR
6 N1AY' 19,9,
1E& OE PROOF COPY
Thank you vciy mu1Lch, Campbel and congratulat Ions to Peter Barnett oil his election
as President of AMIC over the next two years. Ladies and gentlemen, well thank you
for having me along here tonight to sp~ eak to you.
I have had a very long asSOCiation Awith ALM1C twenty years this year, in fact, and
barring the last, I suppose six or seven years, qu) ite a close association as many of you
probably know. For nearly a decade I was the Shadow Minister lbr minerals and
energy and I emerged from the shadows in 1983, of course, to becomne Treasurer,
leaving that particular interest not behind, but to one side for others to handle. But I
have always had a great regard for the industry and a great respect for its capacity to
earn for Au~ stralia and to play a role as Australia's, at least equal to any other, leading
and competitive industry.
Campbell's made tonight a number of challengs flor me. He has got me in running
races on wet tracks and all sorts of things fie has given a big challenge to
Governments in this country and I am -sure that we have all taken note, Richard Court,
and Marshall Perron, 1 am1 sure have triken nlotes at the table as well. But there are
challenges for all of uis and 1 think, certainly the Government looks forwvard to the
challenge's which C'ampbell mentioned, but they are also challenges f1or the industry, I
think, to acknowledge that much has changed and moved favourably for it and also the
challenge to take advantage of the environment which is now here.
SO Much has changed and the Governmient has done a great deal. The mrninn industry
has been internationally competitive, buit the g1reat agent for change in the 80 s was no~ t
the private sector of'AuIstralia, it was the public sector. That's the truth of it. It took
Australia firomn basically an inidustrial backwater to a moudern country again, started to
open it uip. That change has continued and muILch Of it. Of course, has been a benefit to
the mining industry. ' Ihere wats a time when you used to talk to ining companies and
. they Would say, look we are quite elflcient, we are at least, in terms of best practice,
7. May. 93 14: 31 No. 004 P. 02/ 07
2
up with other companies around the world, price is not bad, but profits are lousy. The
profits are lousy for two reasons, because the exchange rate was wrong and because
wages were too high. These were the things which were holding the industry back,
and both of those very major variables were dealt with in the 1980s, and the cost of
that adjustment was borne by the community at large to set the industry up to become
an internationally competitive world player.
When the Government dc-regulated the exchange rate in the early 1980s the
adjustment burden of that change had to be borne by the community and wage earners
in particular, because we knew the exchange rate was substantially over valued and
when it finally fell to recover our compctitiveness that shill to inflation, in inflation,
which was about 5 per cent had to be cut from wages and the burden of that fell on
wage and salary earners, and the political burden of that fell on the Government. Not
just the Government but the trade unions, and of course given the fact that we couldn't
have accommodated such a change as easily as perhaps we did without fiscal policy
and without tax cuts So in the 1980s we produced these fast fiscal surpluses, while at
the same time paying $ 5 and $ 6 billion tax cuts to take the inflationary surge from
wages to see that the ieal exchange rate was competitive to see that the mining
industry could keep its head luapn d earn profits from its own efficiency.
Now, one can't just put in one's pocket changes like these and say the track has been
pretty soggy, I mean the track has been pretty good for a long time. We have had our
soggy spots, but one of then wasn't in macro-economic policy where that huge
change, and you can see it now, commodity prices have fallen in the last year of so, the
exchange rate has gone down, it has equilibrated and I think if you look at the
adjustment in commodity prices via the exchange rate it is about 1 per cent over the
year. In other words, you have got a mechanism now that is working for you which is
maintaining your competitiveness and you are doing it in a wage environment where
the wage share in the economy today, the average of the 1960s and the profit share is
all ready at this stage of the business cycle at the average of the 1960s, and where we
have seen a substantial shift in profitability, indeed, profitability, net profits in the
December quarter were 75 per cent above levels of a year ago. So profits are
recovering, inflation is low, we have broken the back of Australian inflation The great
threat to the mineral industries competitiveness, the greatest threat, a desperate out of
line infation rate has been brought into line at substantial cost to the community and of
course that means working people in general
Not only that, but the one thing, the one claim that the mining industry used to make in
the years when I had close associations with it was that Governments take the monkey
of tariffs, off the mining industry's back. Now, of course, that never happened until a
Labor Government came along From 1988 through to 1991, and then the adoption of
phasings from 1991 through to 1996.97 will see the tarilf wall in Australia
substantially reduced to an average manufacturing tariff of 5 per cent by 1996-97 and
commensurately lower tariff rates for the plan areas of the economy like motor
vehicles, textile clothing and footwear So, in terms of setting the industries agenda,
seeking to have in ollice a Government which first gave it a competitive exchange rate
mechanism broke the back of inflation, carried the huge adjustment costs of
competitiveness like a ball and chain around its neck, and then smashed the tariff wall
TEL: I 7. May. 93 14: 31 No. 004 P. 03/ 07
3
down, they are the things that the mining industry in the ' 70s used to dream about, and
they were all done.
Now, Campbell was waxing lyrical here about whether political expediency will return,
well let me tell you this, Campbell, there was nothing politically expedient sitting with
18 per cent interest-rates three months from an election, I can tell you. There is
nothing politically expedient about bringing down tariffs in a recession. But I am quite
sure you are referring to things like Coronation Hill. Coronation Hill became a totem
issue for the mining industry, where in fact the things that mattered, I think, beyond
Coronation Hill, that is, the things that mattered in terms of the big macro picture of
competitiveness, whether it be by way of exchange rate wages or inflation, other
competitiveness issues generally. These are the things which have had greater weight
and I think people in the industry know that. Coronation Hill had its problems, as a
mine, frankly you could tit it in your eye, the size of it, in terms of the size of
Australia's mining produce it never really mattered, it was some of the principles in
there about how it was treated and whether in fact it was a place that should have been
reserved because of Aboriginal interests. I don't really think that expediency is an issue
in Australian public policy today. I think this Government has been prepared to take
issues on which othci Governments haven't. and not only take them on but continue to
go through them.
One of the other things that Campbell put to us, will our tax regime be adapted to be a
truly world competitive one? Well we have just introduced legislation this week to
reduce the company tax rate from 39 per cent to 33 per cent. When I became
Treasurer in 1983 the company tax rate was 46 per cent and there was a 60 per cent
marginal tax rate on distributed income So, there was 78 cents of tax paid in every
dollar of company income. That today is 33 per cent or if you distribute 47 per cent.
So, 78 to 47 if you distribute, but for private companies as well as public companies
they are no longer forced to distribute they can retain earning in a business, so a
business could retain 67 cents of every dollar of company income after tax today and
before a distribution where that was 22 cents years ago. Now that is a very large
change, and coupled with that of course is dividend imputation. Dividend imputation
is a huge tax break for domestic investors. What it essentially has done is make the
company tax a withholding tax for domestic investors If anyone at an AMIC seminar
in the ' 70s said, I will tell you what else we will do, not only will we give you a
competitive exchange rate, but we will knock tariffs over, we will get real wages down
and profits up, we will radically change our industrial relations scene, we will remove
the double tax on dividends, well I amn quite e sue tlht everyone would have fainted at
the tables. But lthioe things have been done and I think dividend imputation is a great
reform and it has been a great thin tfor the companies.
I just tonight picked up just some graphs of the capitalisation of some of the major
companies in the period, in 1983-84 BHP was capitalised at $ 3 billion, today it is
capitalised at $ 23 billion. So someone is doing right somewhere and I don't think it
was all the BHP Board's doing. CRA was capitalised at $ 2.7 billion, today it is nearly
$ 8 billion. Western Mining, all those lefties down there, they were capitalised at $ 1.1
billion and they are at $ 5 billion, peaked at $ 7 billion in ' 87, but held most of it and
have sort of travelled in the area of $ 4 to $ 5 billion since. Now part of that is the
. enhanced profitability of industry, the enhanced competitiveness of the industry which
cr . Y H -Ll T in; 9 a x n o v v r v
4
has come of course through investment and good management, but it has also come
through macro-economic policy, it has largely come through macro-economic policy,
and that dividend imputation and that more attractive share price, attractive
profitability for shareholders took our stock market index from about 1200 after the
stock market crash back to about 1500 and it sort of oscillated in that 1500 now to
1700. So, par of that market capitalisation is dividend imputation which is another
leading tax change. We have got a 10 per cent investment allowance there for projects
over $ 50 million, halfofthe projects in the $ 130 billion of registered projects are
actually mining projccts. There is a 10 per cent investment allowance for projects over
million, there is another 10 per cent investment allowance for those projects, that's
both under $ 50 million and over $ 50 million, but for any over $ 50 million it is 20 per
cent and we have got now a very competitive schedule of depreciation, I think it is
competitive as anybody we trade with. Which sees, for instance, forty year assets
written off in 15 years, 20 year assets written off in 7, 5 year assets written off in 3
years. So rapid acceleration, a 33 per cent company rate, full dividend imputation, an
investment allowance of 20 per cent, I don't know what else we have to do for you,
Campbell, in terms of a tax regime which is truly world competitive. This is, in OECD
terms, outrageously comlprtitive. In Asia-Pacific terms very competitive, I think we
are one ofthe very few countries that has a dividend imputation regime.
Now, as well as that, you quite correctly pointed out that the Government needs to
keep the progress up, in terms of micro-economic reform, and I agree with you, I think
that is one of our challenges, it is one of the challenges we all face, it is certainly one
we face and I am quite sure that Richard, and Marshall Perron, who are with us tonight
would agree it has won the States faith as well. But much has been done and we are
seeing for instance in our waterfront reform program productivity in our ports have
been boosted by 127 per cent in recent years. Telecoms productivity has increased by
98 per cent over the last five years, reforms to electricity generation and transmission
have seen productivity increased by 41 per cent over seven years, and more is
happening, we are trying to put together an East Coast electricity grid so that
industries can get the benefit of that coal seam down the East Coast of Australia. We
have set up a competitive modelling in telecommunications with Optus and now a third
cellular mobile carrier. We are continuing of course with water front reform and we
have now got OECD crew manning levels, or actually better than OECD crew
manning levels, on our ships. So, that change is continuing and in the course of this
Parliament we expect to do more about that as well, and of course the largest perhaps
of those changes in the micro-economy is in labour market reform, which you correctly
identified, and in that we are now conducting a comprehensive consultation on a
reform package to consolidaec our gains there That is, to spirit along enterprise
bargaining so that we can see productivity, the production of productivity and the
sharing of productivity between prolils and wages, where we can see that
accomplished as an enterprise where it couldn't be accomplished from the decision of
the central wage bench. The central wage bench will be there for the weaker areas of
the labour market to be setting appropriate minimums, but in the other areas of the
economy, which is most of them, we hope to see a structure for enterprise bargaining
go through. That will mean that employees and owners of businesses will be able to sit
down and do something interesting and clever to make the business better, and tonight
at the table, Campbell, was telling me of his own e\ perience at Renison Tin Mine in
Tasmania where the same thing has happened, that very thing has happened between
*'^^^ ilyepy~ Ii. t
his management and his employees to see a large shift in productivity. This is
occurring acuoss the country but there is not enough of it and we want to speed the
process up. But it not though. people are saying I noticed my colleague, the Leader of
the Opposition, chiding me yesterday, saying, well you are following us on that. Well I
haven't followed John on many things, and I am not following him on labour market
reform because what the Coalition had in mind was basically a single wage contract,
individual wage contracts, what we have got in mind is the collective bargaining of the
employees of an enterprise with the owners and operators of an enterprise. It is a
wholly different thing. You could never get that cohesion and sense of common goals,
shared goals, and common commitmenis while each person is basically sliced off
individually into a common law contract. It is not the same, and it won't produce the
same results. But it is important to get the problems ofa business identified and to
have them repaired and the make the business more efficient and that can really only be
done on the spot. It can't be done by someone at a hearing in one ofthe central
business districts of the country, and that's why I think the progress now, the
opportunity now, now we have got inflation low to be able to lock that low inflation in
and with high levels of productivity. not only keep it down but also enhance profits on
the way through. So, I think, this is one of the areas where we do want to keep that
progress up
We have been trying to facilitate major projects, and we have got a unit in my
Department which has been involved in expediting projects worth over $ 4 billion in its
first year of operation, and we have been quite successful there I think, and that
coupled with the investment allowance has brought a number of projects forward and I
think we are going to make progress on them, but more needs to be done to
consolidate them.
The other important issue. I think, is the question of Mabo and where it goes. I have
said to Campbell and his colleagues who saw me last week with APEA and the
National Farmers Federation that I think Mabo is a distinct opportunity for Australia,
and one that should be pursued ambitiously. That is something now which the
Government is seeking to do. That is, to talk to all the stakeholders, the organisations
I just mentioned, as well as the Aboriginal community itself, and to see that we can
reach a regime which will be one which is such that we can put to the States at the
Council of Australian Governments in June or July some proposals where we can
advance the whole establishment of a regime to do justice to the High Courts decision.
There is a bit of a view in the industry that this is something the Government has
brought on and it is something the Government is quite happy to deal with, to wrestle
with, it's a decision ol' the I ligh Court of Austiralia of a case which was heard over
many years and the High Court has turned over the concept of Terra Nullius and has
said there is a native title right in common law, it hasn't said what the title is, how it
should be established, who has the title, or how it may be used or exploited, and we
are as a Government saying, well look, we will try and establish a regime here, but we
have to talk to all the stakeholders, and they are principally the States, the industries,
pastoral, mining, etc and of course the Aboriginal community. This won't be easy, but
it will require a mature set of judgements to reach a package which I think is possible
and which will do more in the event for a true reconciliation between the Aboriginal
and non-Aboriginal communnities in this country than perhaps any other thing has the
immediate opportunity of so loing So, we have already started in those negotiations
49
TEL 7. May. 93 14: 31 No. 004 P. 06/ 07
6
and we are continuing, but we are of course in entirely new territory with this, there is
no structure at all, it has got to be all put into place, and the High Court has only but
given us clues as to what, that is, beyond saying that there is a title, a native title, given
us only clues about what they think the character of the title should be.
So, it is not going to be an easy matter, and it is not going to be a matter where
sloganeering has any place, or incantations, because that could be a pretty expensive
exercise, I think, for all of us. But again, in a consultative, cooperative environment
between ourselves and the States, yourselves, the pastoral industries and the
Aboriginal community itself, I think we can do a great deal.
Let me just perhaps close and sum up on a few of these points. In this year we expect
mineral commodity exports to increase by 9 per cent to a record high of almost $ 31
billion. Total new capital in\ vestment we expect in this year to reach a record of about
billion and over the next five years the AB ARE forecasts the total value of mineral
commodity exports will increase by 22 per cent in real terms and the production of
metallic minerals will increase by 25 per cent. So, commodity exports this year up by
$ 9 to $ 31 billion and total capital investment reaching records of about $ 5 billion.
That is not too bad, a pretty good result, and the key thing is, I think, to keep all those
elements and competitiveness in there so that we can maintain this kind of an effort.
This is what the Government is committed to and of course as you know this week I
had the pleasure of seeing Prime Minister Miya7awa in Australia and that raises the
other prospect of Australia finding itself in an even better position in this part of the
work, bearing in mind 72 per cent of our exports go to the Asia-Pacific area, that we
have a unique opportunity I think with the region, with APEC, this body which we are
now using in a fledging way to develop an open liberalised set of markets in this area,
the interest in APEC by the United States, Japan, China, Canada and most of the
countries of South East Asia, it gives us an opportunity to perhaps find a place for
Australia, an enhanced place, again, not just for manufactured exports or services, but
also for our traditional commodities such as mining. Campbell made the point that we
are also shipping products to the old world and I think that says a great deal about the
entrcpreneursllip and competitiveness of the industry that that is so, but we have
always tended to be most competitive in the area of our immediate region and the
possibilities of us finlding belter markets in this part of the world, are I think, have the
potential to be quiet substantially enhlanced if we kick tile foreign policy and trade balls
in the right way. So, I think that is another challenge we could perhaps add to
Campbell's challenges as well.
All in all could I say that I have always has a great respect for the mining industry. In
the 1970s when I first had contact with it, apart from some segments of our agriculture
industries it was the only internationally competitive industry. It lead the way in
developing new markets in new areas of financing. it had the entrepreneurship the rest
of the country needed In those days we had people like John Stone giving us the
dismal lesson that you couldn't have a malnuflacturing sector sitting beside an efficient
primary export secito that was part of the Treasury orthodoxy of the day. Well I don't
think it was the Treasury I think it was his, but it was his anyway. Of course as you
know in the end commodities couldn't cut the mustard. When John Howard finally
toddled offinto Opposition in 1983 we were running a current account deficit of 6 per
cent of GDP, because e t terms of trade have shifted so dramatically on us that the
TL-7. May. 93 14: 31 No .004 P. 07/ 07
' 7
world wasn't paying us the prices for raw materials it used to pay us twenty years
earlier, and we lefl it too late to adjust Australia Without a fair bit of pain. But we are
now a long way LhroULgh that adjustment task and we can now have an efficient
primary expoi-tirig sector sitting beside an etlicient manufacturing sector and effcient
tertiary and serv'ice seetoirs So thlt dismnal legacy of'those views has now passed there
is no more Gregory Iflisis tryinlg to rocket our exchiinge rate oil the back of the
mineral industry while ninlcuighas been CutI to pieces. We have got all these
things musch more nicely in balance Lcause thle country. thle Government, thle
industries and the community have had the Courage to face the challenges and meet
them. We are a long way down tile road. We have got a long way to go.
But this Government is goin", to Use its mandute to advance it further and it will be
doing it in those areas which do mnatter in the miicro-economy, in wages, in thle
maintenance of a lo~ v inflation rate ard doin-all those sensible things to facilitate
project developmnt. be it in the Iiining or in other sectors of Lhe economy.
Could I again thanlk you l'ur haviniig ine a ) ln tonighit. I appreciate this contact with
the industry, I thought it % vas a good opportuniity so closely following thle election to
come along at Campbell's invitat ion. I am pleased to be here and say that we will be
keeping thce dialog~ ue with the induIstry open, perhaps more fulsomnely in thle first
instance on Mabo, which I think is a huge challenge for all of us and will test our
ingenuity, I ami certain. Thank you very much for having mie, I ani very pleased to be
here in the comipany of my colleagules, Richard Court and Marshall Perron.
Thank you.
ENDS