FOR PRESS 26 AUGUST 1977
PRIME MINISTER'S ADDRESS TO THE NEW SOUTH WALES CHAMBER OF
MANUFACTURES DINNER
Mr. Presidentl Sir John Moore, Gentlemen. I am particularly
glad to have this opportunity to speak with you this evening.
Bob Cotton would very much have liked to have been here, but he
is representing the Government at a South Pacific Forum meeting
in Port Moresby and he has asked me to convey his apologies.
It is just ten days since the Budget was introduced in:
Parliament, and I want to discuss with you its impact on the
manufacturing sector. The Budget continues the policies we have
pursued since coming to office, policies which have led to
inflation being significantly reduced; real economic growth
being restored; the expansion of big Government being halted;
and Government spending being contained. The Budget will further
advance the fight against inflation, because it has reduced the
deficit by half a billion dollars and held Government expenditure
to zero growth in real terms.
It is because we exercised restraint in Government spending we
have been able to introduce a radical change in income tax.
We made our tax reform because we know that if Government takes
too large a share of the nation' s resources, the incentive to
work the basis of a country's prosperity is undermined.
our tax reforms restore the incentive to work harder and more
productively, to earn more and to decide how a greater part of
one's income is spent. Under the new scheme, every taxpayer,
whatever his level of income, will be better off. Ninety percent
of taxpayers will be subject to only one tax rate 32 cents in
the dollar., The first $ 3,750 of income will not be taxed. Any
taxpayer above that, earning up to $ 16,000 will be taxed at a
flat 32 cents in the dollar. If you combine those two steps,
he pays less than 25% o-E his total taxable income in tax.
Surcharges apply above $ 16,000 14 cents in the dollar up to
$ 32,000 and 28 cents for income over $ 32,000.
Our latest tax reforms plus tax indexation will be a cost to
revenue of $ 1,371 million this financial year, and $ 1,857
million in 1978/ 79. These personal tax reforms will benefit
the manufacturing sector, by strengthening demand, easing pressure
for wage increases, and restoring incentive for all staff and
employees. / Manufacturers
Manufacturers have often found it difficult in the past to
attract good skilled tradesmen. High marginal tax rates proved
a disincentive to acquiring skills, to accepting more responsibili
and to working overtime. With the single tax rate of 32% covering
of taxpayers, this disincentive has been removed.
Our combined company and personal tax measures in the first two
full financial years will have saved taxpayers well -over
$ 3,000 million. Anyone who questions the reality of our tax
reforms has not faced up to that figure, over $ 3,000 million.
The tax cuts we have made are exactly what people called for
before the Budget. The Associated Chamber of Manufactures of
Australia called for tax cuts, and so did the Victorian Chamber
of Manufactures. The Bank of New South Wales and the A. N. Z.
called for tax cuts, and a large number of company Chairmen did
the same. Even-Mr. Hawke and Mr. Uren asked for tax cuts before
they thought we could bring them in.
When we look at the extent of tax reforms we have introduced,
I do not believe that anyone can argue that the benefits of
these tax reforms have been reflected in a commensurate degree
of wage restraint.
Tax cuts certainly would have' been impossible under the
-ALP's so-called strategy which implies a deficit of $ 3.5 billion.
A 50% increase over the 2.2 billion we have budgeted for this
year, an increase caused by a large increase in Government
spending. What the ALP's strategy would achieve is higher
interest rates, and higher inflation. It would do nothing
for unemployment. It would not have helped inflation. Even
with the rise in company tax of three and a half percent, the
nett increase from company tax this year will be only 6%.
Noticeably less than the rate of inflation, and noticeably
less than the other main components by which the Government
retains its revenue. The major reason for the low rise in
cbmpany tax receipts is the tax reforms, particularly the
investment allowance and the trading stock adjustment,
introduced in last year's Budget.
M-anufacturing industry is of great significance to the Australian
eccrnomy. rt has played a vital part in Australian economic and
social development, and will continue to do so. Manufacturing
industry accounts for almost a quarter of national production,
and contributes about one-fifth of total exports. It employs
over 20% of the total workforce, one and a quarter million people,
of whom one-third migrated to Australia looking for a better life
and greater security. Manufacturing industry has faced
co.;-. iderable difficulties in the last few years. Manjagement
has faced the challenge of tackling inflationary pressures, a
reduced rate of growth in the domestic market, industrial relations
difficulties, greater industrial development in other countries in
our region, and, above all, an explosion in wage costs. The grave
imbalance between real wages and productivity resulting from
the 1974 wage explosion still remains Australia's major economic
problem. Wages as a cost have continued totincrease relative to
other prices.,
As measured by the vital indicators, the private consumption
deflator, the non-farm GDP deflator, the Consumer Price Index
excluding hospital and medical service, average weekly earnings
outstripped prices last financial year. I know if you take the
CPI unadjusted for Medibank you can arrive at a different result.
But that is a most unsatisfactory method of making a proper
comparison. Medibank had to be paid for either out of
consolidated revenue or by the special levy a change from
one method to the other alters the CPI dramatically but in no
way reflects any change in the underlying rate of inflation.
Another way of seeing how great present wage rises have been
is to compare changes in the Australian average weekly earnings
index with the US average earnings-index. The components of
the two indeces are not the same, but it is relevant to compare
the way the two series have increased. In the three year
period from the end of 1972 to the end of 1975, Australian
average weekly earnings increased about three times the rate
of increase in US average wages 65% compared with 22%.
And. this increase in earnings does not measure the full
cost of labour to employers. In recent years, non wage
costs, such as workers compensation, payroll. tax, and more
generous leave provisions, have increased greatly.
The prospects for manufacturers seemed dismal,
particularly in 1974-75 when manufacturing industry suffered
the triple shock of an increase of over 30% in wage costs, an
inflation rate that reached 19.2% in the last half of 1974,
and the effects of the notor: ious across the board. 25% tariff cut.
All this ercded our International competitiveness, and was reflected
in a loss of export ima. kets and increased penetration of domestic
markets by imports. Emrplo yment in manufacturing has fallen by
170,00 since May 1974. But since the December 1975 election, the
outlook for manufacturing industry has improved.
First, we recognised the acute financial difficulties which the
taxation system ii. posed on business through the effects of
inflation, so graphically described in the Mathews Report.
I have already 0otlinecs. o me of the reforms we have made in this
area. Second, we have taken decisive. action to reduce the rate
of inflation which has caused such damage to manufacturing industry
in Australia, and we have had considerable success. When we came
to office, the ra-e of inflation excluding hospital and medical
services was 16.7%. At the end of June, the inflation rate was
down to 10.2%. We are determined to reduce it further.
We have legislated to bring greater justice, common sense and
consultation to industrial relations. We have established the
Industrial Relations Bureau, and the National Labour Consultative
Council. We have legislated to provide for secret postal ballots
for the election of officers of unions registered under the
Conciliation and Arbitration Act, and to limit their term of
office to four years. We have amended the Trade Practices Act
to ban damaging secondary boycotts by employees which do not
concern disputes over conditions of. employment. The Royal
Assent has now been given to the Commonwealth Employees ( Employment
Provisions) Act 1977, This enables Commonwealth Government
employing authorities in the public interest to suspend or
dismiss Governent employees who take industrial action which
unreasonably disrupts the provision of services to the Australian
community. It also provides for standing down without pay
Government employees who cannot be usefully employed as a
result of industrial action, or who are engaged on functions,
the performance of which is seriously disrupted. Before this
legislation was passed, the Government's powers were far less
than those of many private employers. This legislation goes a
long way towards redressing the imbalance. Our firm but fair
industrial policy has achieved a significant reduction in the
level of industrial disputes.
This year, we have had by far the lowest level of industrial
disputes this decade. By contrast with the Government's common
sense and desire for consultation, a minority of unions desire
confrontation. I know the public wants the Government to be firm
in these matters. But when some union tries to confront the
community, it is remarkable how readily some people want to
ignore it.
The Government is totally determined that the law will be upheld
in industrial matters. A community cannot operate if the law is
not maintained, and you cannot have a situation where the law
applies everywhere but in industrial relations. The previous
Government was not prepared to uphold the law. After the air
traffic controllers dispute and the postal workers dispute, I
hope that no-one has any doubts about our resolve. Perhaps,
most importantly of all, the Government realises manufacturing
industry's need for -predictability in Government policy.
As we stated in our White Paper on manufacturing industry, a
clearly stated and widely accepted approach policy for industry
is an important factor in generating the confidence for industry
necessary to encourage long term investment. These were not idle
words. We are determined to restore confidence restore the
conditions in which the private investor can face the future
wi-h greater certainty.
There are a number of factors which are helping to provide a
more stable and secure environment for manufacturing industry.
The short teirm and long term policies of the Government have
been clearly stated. In the present period of low economic
activity and high unemployment, levels of protection will not
be reduced where this would endanger employment opportunities,
or jeopardise. the viability of particular sectors of the
manufacturing industry.
have introduced an exchange rate policy which avoids sudden
un. redictable changes. The long run profit share of the national
income is steadily being restored. Rises in costs, for labour
and raw materials, while still of concern, have been brought
under greater control, and increases in real disposable incomes
increase demand for manufactured goods.
Our industrial policy aims at helping, not hindering, business
confidence. To do this, a balance must be achieved between
lonc and short run considerations. In the present economic
circ-. um. stances, the Government is resolved, through its industry
assistance policies, to provide the element of security and
stability industry needs, and thereby maintain activity and
/ Concrete
. rI i
Concrete evidence of the Government's commitment to this objective
is evident in our recent action regarding motor vehicles, textiles
clothing and footwear. In regard to motor vehicles, the Government
has continued the policy it first adopted in 1976 for preserving a
minimum market share for local manufacturers, which is sufficient to
maintain a satisfactory level of activity and employment. We had
hoped that this policy could be implemented without -import
restrictions. But when we found that this was not possible, we
introduced import quotas, andwe shall take further action, if
necessary, to ensure that local industry's share of the market
does not fall below
Last month the IAC published its. draft report on textiles, clothing
and footwear, and a week ago the Ministers for Industry and Commerce
and Business and Consumer Affairs, announced the Government's
approach to these three industries. It must be a matter of concern
to the Government when industry believes that the Industries
Assistance Commission is a body to be feared. Clearly, in a
country which has. a relatively small domestic market, and a high
cost structure, continued assistance to industry is inevitable.
To have a body which advises on the level of that assistance, but
which some believe is dedicated.. to. the destruction of industry,
seems a grievous contradiction.
The Government and the IAC itself, have to ask how this position
has come about. Does it really arise from the IAC's Charter?
Early in the life of this Government, the then Minister for Business
and Consumer Affairs, John Howard, wrote to the IAC, to ensure that
all IAC reports gave due consideration.-to the employment effects of
it's recommendations, including. their effects on employment in
decentralised lccations. and the capacity of the economy to absorb
any changes which the IAC might recommend. The Minister asked that
each IAC report should advise on the assistance required, to maintain
the present level of activity, and employment, in the production of
goods under reference. He also asked that if a lower level of
assistance was recommended, the Commission should give reasons,
why it did not recormexld . th assistance required to maintain the
present level of activity and employment.
But what do we find? In a time of high unemployment, the IAC
submits reports which would create more unemployment. The IAC
draft report on textiles, clothing.-and footwear, produced a totally
unacceptable degree of uncertainty in the three industries involved.
If we had not acted promptly, it would have severely undermined the
confidence. necessary to sustain investment and employment in these
industries. Our consideration of that report, and earlier reports
has led to the Government taking. certain actions. Sufficient
assistance will be given to ensure that there is no-reduction in
the level of activity, or employment, in the textiles, clothing
and footwear industries for the next three years.
During this period, we expect the industries to make positive
efforts to improve their structure and efficiency, and, in
consultation with th. e Minister for Productivity and the appropriate
trade unions, to determine the potential scope for increased
productivity. / We have
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We have also asked for a study to be made of the role of the
IAC against the background of present economic problems in
Australia. ' When this study is completed, we will be in a
position to tb. ke whatever further action is necessary to achieve
a more certain decision making climate. In the current economic
circumstances, we hav6 decided not to send to the I. A. C. the five
remaining references on metal products-under the I. A. C.' s tariff
review programme.
We have taken this step because we are well aware that a reference
to the I. A. C. can destroy confidence to invest in the industry
involved. Indeed, under the present circumstances, with the
present reputation of the the long term reference is likely
to kill investment plans in this industry. We have no intention of
allowing that to happen.
A great de al has been spoken in recent times about structural
adjustment. In boom conditions, it is possible to remove resources
from one area to another, by deliberate government policy without
causing undue damage and hardship.
Protection for a particular industry ~ can be reduced without grave
social consequences because employees can readily obtain jobs
elsewhere. But to talk of structural adjustmentina time of economic
difficulty and under-production is sheer nonsense. This is why
in the white paper on manufacturing industry we speak of the
differences between shortn term and long term objectives and policies.
If in today's conditions industries are not given adequate protection
there can only be more unemployment. In order that we may
further define our long term policies for implementation when growth
has been restored to satisfactory levels, the government has decided
to have a study undertaken under the chairmanship of Sir John Crawford.
Of th , e adjustment problems which will eventually be faced, in the
most highly protected Australian industries. It should be clearly
understood that adjustment should not be defined as elimination.
What we~ want is the long -term strength, stability and viability
of Australian manufacturing industry. I'm sure that Sir John is
well aware of how essential a broad based manufacturing industry
is to AustraliA.
Mr President, I know that there are still problems for manufacturing
industry in this country. But. I believe that the government is
establishing the conditions ,, in which it is reasonable to expect a
r-eturn of confidence in industry.
our over-riding goal is to create and maintain a climate in which
new opportunities will exist for business initiatives, new investment,
and high employment. Government has an faportant part to play in
achieving a full economic recovery but the importance of business
itself cannot be underestimated.
what we are now looking for is a positive response from . private
industry. And we are greatly encouraged by recent developments
with the North West Shelf project and a number of new investments
in manufacturing industry which have been announced recently.
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Recovery in the economy which we are looking for requires a joint
effort by all of us industry, government, unions. The
government's policies particularly when capped by the tax
reforms and reduced deficit of the budget have set the scene
for renewed real growth.
I am confident that, once again, Australian manufacturing
industry will play its full part in achieving that goal.
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