Embargoed until 9.30 p. m.
I PRIME MINISTER
FOR PRESS 17 NOVEMBER 1977
A~ DDRESS AT MORGAN GUARANTY D2NtNER,,. EbUOMMNE
I heard an overseas visitor the other day describe Australia as
a land of opportunities a country which North Americans arnd
Europeans regard as one of the few still having the potential to
offer the excitement and adventure that goes with new development,
and the potential to challenge and to extend the horizons of its
people. I f ound it encouraging that overseas visitors should once
again be talking like that. it is a sign that times are changing.
Five or six years ago, most Australians, as well as our overseas
friends, were thinking along similar lines., Since then, we have
been through a period of doubt and u rcertainty a period during
which we tended to blame others for our misfortunes, and during
which we became unsure of our capacity to solve our problems.
In a word, ' we lacked leadership.
I believe that we have passed through that period and ' that a new
prospect is now emerging -a prospect that Australia will niot only
provide much greater opportunities for advancement of its own
people, and those who may come and join us here, but also a
prospect that Australia will provide an example which others
will look to when setting their own economic policies in the
years ahead.
That is a large claim. Let roe elaborate upon it. In doing so
I want to refer to some basic simplicities about the Australian
economy -and other such economies that. I fear were lost sight
of during the leaderless period which I referred to, but which
cannot be tnored if we are able to have regard to our underlying
health and the future of our country.
I want also to comment on economic developments in Australia in
relation to those overseas, and to put them into some perspective.
You will not be surprised if in present circumstances I start by
referring to the years before the present Government came to office.
I do so because an understanding of the record of those years is
fundamental to an understanding of the present state of Australia
today, and because, as someone said, if we are not prepared to
learn from history, we shall be doomed to repeat it. That is a
thought, indeed, which I believe all Australians should have in
their minds in just over three week's time. / You will
You will all be aware of the explosion, during the 1973-75
period, in both unemployment and inflation rates in Australia.
It is a matter of clear public record that in the second half
of 1974 inflation soared at an annual rate of 19 per cent, and
at the end of 1975, unemployment was 5.4 per cent. These
frightening developments and I use that word quite literallywere
accompanied by, and a product of, a sharp fall in business
profitability anid ant equally sharp rise in personal savings.
By the end of 1975 the share of company profits had fallen to
12.7 per cent compared to the long-term average of 17.5 per cent.
While on the same basis, the proportion of incomes that people
saved jumped from 9.8 per cent to 16.2 per cent.
The business community found itself on the anvil of a basically
anti-business Government, while the hamer of the 1974-75 wage
explosion itself promoted by that Government descended upon
it. The results were entirely predictable. -We saw the developmnent
within our business community of a " survival mentality"-
an atmosphere in which only fools took risks because the future
had become largely unpredictable; and because risk-taking, the
fundamental process which underlies all private enterprise
economies and hence all free societies was nolonger, so it
seemed,-to be rewarded appropriately in profit terms. I
With labour costs exploding and profits plummeting, businesses
went into their shells. As part of the cast-cutting processes
of doing so, they found it necessary to lay off, or cease to talke
on, labour. The resulting sharp jump in unemployment itself added
to the uncertainties from which ordinary consumers-: were also
suffering,. an&_ whichJn. turn were leading them to " button up" t
to slow down their spending anid increase their saving.
What these events signified was that businessmen and consumers
alike had lost the confidence to spend. They were too uncertain
to commit themselves beyond the immediate future and for
essentials. But over and beyond these developments, there
loomed another thxeat to the future of Australia, or at least
the kind of Australia that -rost Australians had come to hold
dear. I refer to the threat of " Big Government" itself.
It is now a matter of history that the Government of the day
reacted to the onset of the problems I have mentioned by trying
to pump up the economy. In a series of wild decisions they
raised the 1974/ 75 Budget deficit to no less than 4and a
half per cent of GD?, in the process increasing commonwealth[
outlays in one go, from 24 per cent of GDP to nearly 30 per cent.
The .1975/ 76 Budget deficit was originally set even larger in
relationi to the economy ( 5 per cent of GDP), and would undoubtedly
have turned out even larger still if, half way through that year,
a new Government had not set about reining it in.
But, you may say, pump-priming however ill-judged is one
thing: " Big Government" as a philosophy is another. What became
clear at that time to all with eyes to see whether Australians,
or our friends abroad was that here in Australia we had a
particularly virulent case of both. / Through
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Through one scheme af ter another, the Government of the day
sought to intervene more and more in the everyday lives of the
people. The spending programmnes involved were too numerous to
count. Both the overt and the convert thrusts from the centre
to undermine the independent powers and role of our state
governments were clear for all to see. In one way anid another
it as sought to make as many of our citizens as possible
dependent upon . the Federal , Government for their nouri shment
anid even survival. This was the nation of pensioners which
" Big Government" in Australia set about creating.
As to our economic troubles, there is of course a view that
none of our troubles at that time was home-produced, but rather,
some hind of malady imported from abroad; anid there is of course
the -associated view that many overseas countries, faced with
economic problems not wholly dissimilar, also took the pumppriming
route in trying to solve them.
The first of these views is generally a self-serving one. I
do not -7propose to waste your time by rebutting its obvious
untruth. But as to the second view, I do have to say in all
fairness that Australia under its previous Government was not
the only country that tried to solve its economic problems at
that time by restoring to the traditional post-war " Keynesian"
pump. There were, however, a few countries that clearly or
otherwise perceived that pump-prining " remedies" of that kind
were outdated and inappropriate in a situation of high inflation
and depressed profits.
They say that pumping out more money into the economy through
swollen budget deficits, with the associated risk of exacerbating
inflation, made no sense wheni the cazwnunity's fears and reluctance
to spend were evidently closely related to the uncertainties
created by inflation itself. They saw that the problem was not
in fact any shortage of purchasing power, but rather an
unwillingness to employ that power until greater confidence
in the future value of their currencies could be restored,
and above all, an increasing distrust of Governments and the
destabilising consequences of their interventionist proclivities.
These countries, therefore, garve priority, first and foremost,
to bringing down inflation, primarily by reducing their budget
deficits and the growth in their money supplies.
I am referring of course to countries such as the United States,
Germany and Japan, all of whom took strong action along these
lines during 1973 or 1974. This action was successful in
sharply braking and then reducing inflation in those countries.
But initially, it also caused a reduction in their economic
growth rates and an increase in their unemployment. in each
of the years 1974 and 1975, for instance, the United States
recorded falls in GDP and increased levels of unemployment.
in both those years unemployment also rose in Germany-while
GDP was either flat ( in 1974) or falling ( in 1975).
However by the end of 1975', the three largest industrialised
countries were seeinig a sharp decline in inflation, anid economic
activity was steadily recovering. ' while there have since been.
some iuriods of hesitancy, that recovery in economic activity
has continued since that time in all those countries. / The
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The comparative success of the policies pxirsued by the three
strong countries ( in particular) did not go unmarked internationally.
In some quarters such as the OECD it led to
a significant rethinking of economic policy strategy.
For example, the so-called medium-term strategy which was
adopted at the June 1976 meeting of the OECD Ministerial
Council recognised that " The restoration of full employment
and normal levels of capacity utilisation in the OECD area
will be progressive and take a number of years." Most importantly
it recognised that The steady growth -needed to restore full
employment and satisfy rising economic and social aspirations
will not pcove sustainable unless all mnember -counntries make
further progress towards eradicating inflation." In short,
it recognised that in the process of restoring economies
shattered by inflation. and its associated uncertainties# there
could be no short cuts no easy options.
Six months before this strategy was in place internationally, iny
own Government had already started to implement its essential
elements here in Australia. On taking office, we -moved
immediately to cut back the growth in Government spending; to
bring the budget deficit and the noney supply under control; and
to reduce the Federal bureaucracy.
You might be interested to know that if we had allowed
Commonwealth staff to grow at the same average annual rate of* the'
1972/ 75 period, about $ 770 ioillion would have been added to the
Cormmonwealth salary bill* We did not seek to reduce Government
spending in any unduly drastic way because we recognised that
the economy. had-already--experienced severe shocks and structural
changes. W everthelessf within the past two years we have contained the
rate of growth of Federal outlays in our first budget to less
than half that of the previous year; provided for no real growth
in our budget outlay in the current fiscal year; reduced the
budget deficit this year to around two and a half per cent of
GDiP compared with five per cent or more when we took office;
even though we have, at the same time, reduced the burden of
taxation at a cost to revenue of no less than tiree and a
quarter billion dollars, halved the underlying growth o * f the
money supply, to less than ten per cent, and restored Australia' s
external competitiveness by a devaluation which we did not want
and which we resisted for almost a year while giving our policies
time to work, but which in the end, because of the deterioration
in competitiveness which occurred under the previous Government,,
was forced upon us. The Government was confident that this
devaluation would result in only a -minor check to the downward
movement in inflation,-owin รต to the continuing firmness of its
other policies. I am pleased to say that the Government was right.
There can be nio doubt that these policies have resulted in a
transformation in the underlying health of the Australian
economy. / There are
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C. PAZC. k .
am ! mum
Inflation, as -measured by the broadly based indicators in
1976/ 77, was around 5 per cent less than in the previous
year, and# so far. in 1977t consumer prices have risen at
An annual rate of around 9 per cent, about the same as the
average for our~ trading partners, ComPany Profits rose by
24 per cent in 1976/ 77 and the profit share is gradually
moving back towards more normal and more appropriate
levels. The household savings ratio has mved back about
two thirds of the way to " Inormal" and the external current
account position has improved -ma kedly during 1977..-
Since Septentber last there have also been significant
reductions in interest rates on Government -Bonds, . ranging
up to more than half a per cent. This is the first
consistent downward inovem~ nt in the structure of Government
Bond rates for more than four years.
These reductions reflect businessmen's reduced inflationary
expectations and rising confidence.' The yield movements are
in line with the declines which have already taken place in
important private rates.
I am confident that if current policies are continued, the
downward momentum will gather pace and spread to a wide range
of financial assets and securities. / At tines I
There are two ways in which that can be seen. The more
conmln way, but also the more superficial one, is to look
at the usual economic indicators. I
At times this will involve the Government taking the lead in
reducing one or more of its rates: on other occasions it will involve
the Government responding to mcvements already underway in non-Government
rates. The policy is to achieve, gradually, on a sustainable basis, a mu~ ch
lower interest rate structure.
In order to understand the transformation which the last two years
have wrought in the Australian economic scene we have to understand
what those two years have been all about.
They have not been about producing a " quick fix" for economic output,
or unemployment, or any of those things.. because, as I noted earlier,, the
is no hope for us in policies of that kind.
What they have been about is the hard and undramatic grind of putting in
place and maintaining the kind of policies which can gradually lead
the restoration of the pre-conditions for a return to more normal levels
of economic activity and employment.
Seen in that context it is remarkable in one sense that we have been able
to put our policies in place while continuing to achieve growth in
economic activity and in employment. Not even the United States and
Germany succeeded in doing that.
Thus, our non-farm GDP in the Jfune Quarter of 1977 was 5% higher than
in the December Quarter of 1975, and, over the two years to August, 1977,
employment rose by 180,000. b
By contrast in the lost year of the Labor Government there was a fall
in the number of employed persons.
But what I seek to emphasise tonight is not, as I say, those usual
economic indicators. Much more fundamentally imnportant, over this
time, has been the re-establishment of broadly appropriate settings
for our f iscal, monetary and external policies. I cannot emphasise
that too strongly.
it is quite basic to any appraisal of the future of Australia in the
years ahead. As a consequence, we have gone a long way towards restoring
business and consuner confidence by bringing down inflation, and
inflationary expectations and improving profitability. And abovre all,
the shadow of " Big Government" is lifting.
What, then, of the future outlook?
eI9 nuonttirciees stohmea t shuagvgee stmiaodne s soomvee rsperoasg retshsa t aigta imnasyt ninowf labtei oanp prtoo prstiiamteu lafoter thos
thirii economies ' so as to deal with " unduly slow growth and increasing
unemployment".
W" vhuant duthlye sselo ws uggrgoewstthio nasn d doin cnroeta saipnpge aru netom ptlaokyem efnut" l lyin inthtoo sea cccoouunnt triie6 s thaarte
basically a reflection of inflation rates that are still too high,
inflationary expectations that are Insufficiently diminished, profits
that are insufficiently restored, and above all, fears of the policy
instabilities of governments. Fears the force of which, indeed, these
very suggestions I referred to are in danger of confirming. / In the
/ Aga inst
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In the United States, the Chairman of the U. S. council of Economic-
Advisers, Mr. Schultze, recently complained that:-
" Oar inflationary problem also continues to plague us. Inflation
is no longer running at the double digit rates of a f ew years ago, but
the underlying rate of six and six and a half percent that persists is
far too high for comfort."
He went on to note that:
" The years of deep recession and double digit inflation f rora which we
are emerging left scars on the economy -that will take a long time to
heal. The severe ;: economic decline of 1974/ 75 with the consequlent
reduction in employment, income, capacity use, and business profits was
a shattering experience to business f irms and to workers and consumers.
Double digit inflation also had a devastating effect on business and
consumer planning for the future. Memories of these events linger on
and generate a climate of substantial uncertainty and nervousness
nobut the future."
if those comments are true of the United States-which ot-.. oourse they
are how much more true are they of Australia, whose experience in
all those regards cited by Mr. Schultze has been so muich worse.
Against tis sort of backgrouna, it seenw apprupx. 4x tco a~ n
what a policy involving increased government spending would do
to further reduce inflation and inflationary expectations?
The answer to that question is that it would clearly make them
worse. And that, by doing so, they would further delay the full
recovery of economic activity and employment.
By contrast, Mr Chairman, policies in Australia for the last two
years have been based and will continue to be based on the
firm conviction that rooting out inflation, and the restoration
of confidence in the ability and determination of government
to achieve and maintain that, are the key to restoration of
economic health in this country.
I have indicated elsewhere that, with inflation in Australia.
in 1978, now forecast at around seven and a half percent
or less we expect to achieve growth in that year of around
f ive percent. We also expect unemployment to decline steadily
from February.
with more appropriate outcomes in the area of wage determination
than we have been getting, the outlook could be even brighter.
I emphasise, Mr Chairman, that all of these expectations are
based on a continuation of existing policy settings. These
will enable consolidation and further progress in reducing
inflation and in restoring confidence.
In this latter regard it is significant that the engine of
sustained recovery business investment is now moving into
a higher. gear. For without additional investment we cannot in
the longer run, have growth in real product or therefore in
real incomes or employment.
The, government -attaches particular importance therefore to
the indictions in the Statisticiant's latest survey that
private enterprises expect to increase their aggregate new
capital expenditure in the six months to December by no less
than fourteen percent, in seasonally adjusted terms on the
level of the previous six months.
on the. same basis, the expected increase is thirty-three percent
in the manufacturing sector and sixty-six percent in mining.
For over a year now, the government has monitored the extent
and possible timing of planned investment of a large scale
nature in the Australian manufacturing and minimg industries.
major projects to coomence in the next three years, some of
which are under-way, are estimated to involve expenditure ( in
1976/ 77 prices) of $ 6,000 million during their construction
or development phases.
Aggregate estimates of intentions of this kind must
inevitably be subject to-sbme qualifications, such as trends
in international trade and domestic political developments.
However, the government is advised that $ 6,000 million in
major projects can be classified as " firm".
Mining Investment in particular appears set to increase
significantly. Major project investment in manufacturing
is also foreshadowed concentrated in a few industries,
especially chemicals and mineral processing. / in Addition#
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in addition, a substantial, but as yet unmeasured,
scope exists for the manufacturing sector to participate
in the construction, mnining and processing phases of
the major mineral developments.
Looking ahead into-.. the medium term, investment trends will be
influenced significantly if a small number of very large projects
proceed. These are the North West Shelf gas project, uranium
mining, and processing, alumina production, open-cut coking
coal projects, and petrochemical plants. It seems quite clear
that Western Australia and Queensland will become increasingly
important locations for investment not only in mining bat also
in manuf acturing ( mainly mineral processing).-
I note also that the latest United States Comerce Department
Survey of Expected Capital Expenditure by U. S. affiliates.*
in Australia points to a twenty percent increase next year.
A clear sign of the increasing confidence being shown by
overseas investors in this country.
Since the removal of the V. DJR. capital inflow controls on
7 % fuly this year, the flow of applications for private
overseas borrowings has, as must be expected, been fluctuatling.
Nevertheless, there have been 93 applications over this
period for private overseas borrowings, totalling $ 718 million
of which $ 253 -million is for mining'; $ 199 for finance;
$ 123 million for manufacturing; $ 93 million for commerce;
and $ 60 million for property development. Approvals so far
total 79 for $ 535 million.
This too is evidence of the confidence of overseas investors
in Australia. It supports the case for the government overseas
borrowing du rng..._ t. e. period while private investment is in
the process of recovering.
To this internationally oriented. gathering, it is particularly
appropriate that 1 should say that the prospect of a new
era of exciting development is opening up for Australia.
The resources are there to be developed; the labour force
is there to help develop them. Increasingly, too, the good
sense of most of the people who make up that Labour force
is re-asserting itself; as the. great majority of Australian
workers are coming to realise that higher wages do not reduce
unemployment but increase it.
With the outlook for profits improving, capital will be coming
forward to undertake the necessary investment projects.
And is indeed already beginning to do so.
Last, but by no means least,, businessmen and consumers alike
can now look forward to a stable and predictable framework
of government policies within which to go about their
respective affairs. Australia is not yet out of the woods.
But we have set out f eet on the path towards goals which,
when achieved, will make this country once again a land of which
. we. can -be. proud, a land which can be an example to the world.
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