FOR MEDIA WEDNESDAY, 23 AUGUST 1979.
ADDRESS TO VICTORIAN CHAMBER OF MANUFACTURERS, MELBOURNE
Mr. President, Your Excellency, the Lord Mayor, my Ministerial
colleauges from Canberra and also from the State Government,
Ladies and Gentlemen. Thank you very much Mr. President for
asking me to be with you on this day. I welcome the opportunity
of being able to say one or two things about the Budget and
to be able to talk to you about the way in which the Government
sees the Australian economy moving.
I would first like to compliment you on a sign that is behind
my head, because the reserve forces can't really operate unless
there is co-operation by employers all over Australia.
Members of the reserve forces, I believe, play a very importah.
role in Australia's overall national life and in providing
a reserve capacity significantly to strengthen Australia's
defence. But it can't work, and won't work, without the
co-operation of employer organisations, of individual companies.
Therefore, I was particularly pleased to see your own gentle
advertisement and support for the reserve forces. On behalf of
the Government thank you for that.
Mr. President, I believe that the Budget that John Howard
introduced a couple of nights ago is a particularly good
document because it maintains the strength of the Government's
anti-inflationary policies. I haven't ret anyone saying the deficit
should have been lower. It is an anti-inflationary as anyone
wants. But at the same time, it has been able to provide SOME!
important incentives, concessions, to different elements of
business and to take one or two major initiatives in realising;
our general objectives and goals in social reform. Being able
to do that within overall responsible Budget perameters, having
in mind our first obligation to the health of this economy, is
I think a pleasing one and I hope you can all share in that.
The Budget does have three major objectives: to strengthen the
economic health of Australia; to advance on the progress we
have already made; to encourage further growth and development
in Australian industry; and also to meet some important social
objectives.
The strategy that we have adopted over the last three and a half
years has, I believe, been very very strongly vindicated by
events that have occurred and by the improvements in important
elements of the economy. That is why, of course, the broad
Budget strategy is maintained and if anything, strengthened. / 2
-2
For the first time in a number of years civilian employees
and employees in manufacturing industry over the last 12 months
has started to grow quite strongly. While not yet enough to
make any significant dent in the numbers unemployed, civilian
employees over the last 12 months has grown by something over'
60,000. The first time for a number of years when that has
occurred.
Factory production is up in the last year. Over 4 per cent in
real terms. Profitability is also up. I know that you would
alwavs be able to say that profits could be even higher, but
profitability, as I hope you will agree, is improving and in
many cases quite significantly.
Because of improvements in productivity, because of growth within
the economy, and because of the broad thrust of our wages policy,
the real labour costs per unit of output have in fact been
reduced and that has been highly signficant in re-establishing
the competitive base of Australian industry. It is not so long
when in the year to March 1975 and I think a lot of us might
have forg~ otten this award wages rose by 38 per cent in one year
and the Consumer-Price Index rose by about 14 per cent or
per cent in that same year. No wonder there were some imbalances
and difficulties to be overcome against that kind of onslaught.
But over the last period, the annual average growth in award
wages has been about 8 per cent a year. That again, has indicated
a zreasonable degree of restraint and much more than has been
found in manv countries overseas. Again, in spite of the
industrial trouble over the last few months, the movement outside
indexation has been minimal and much less than many people
feared as we approached the Autumn.
As a result of our policies, and despite present pressures,
inflation is down substantially from what it was. But I think
it is worth comparing Australia's performance with what has
happened in a number of other countries. On an annual basis,
inflation to six months in the United States, now stands at
14 per cent. The United Kingdom at 16 per cent. OECD countries
generally by 11.8 per cent and Australia at 9 per cent.
While we can keep our inflation below that of those major countries
Australia becomes more competitive instead of less competitive.
Putting it another around, if you wanted to compare the acceleration
rates, on Australia's inflation and that overseas, in the
United States inflation has accelerated by 28 per cent, the
United Kingdom by 38 per cent, OECD countries generally by
per cent, Japan admittedly from a low base by 66 per cent
and in Germany from a low base by over 90 per cent, Australia
by 2 per cent. A much better performance in maintaining and
containing inflationary pressures than in all of those countries.
As a result of these policies of course the dollar has greatly
strengthened and we are seeing the benefits of that. Competitiveness
has been greatly restored and some Australian manufacturers
are now moving out into export markets in a most enterprising and
imaginative manner. / 3
-3
The volume of manufacturing-. exports in the 9 months to
March was up nearly 20 per cent over the previous period.
Mining and manufacturing investment on projects ready to go
and in the final feasibility stage, stands at about $ 12 billion.
But I note there has been a detailed research by W. D. Scott
which indicates that the sum should be nearly $ 30 billion
over the next five years. I don't make any claims to that
figure. It is a very large figure of prospective investment
and development but that is the figure from W. D. Scott.
There has been international praise for Australia's economic
policies, for a steadfastness-in pursuing those policies and
in responding to the renewed inflationary pressures arising
from results in the Middle East and also from beef prices.
The OECD complements Australia's economic policy. GATT noted
in its last annual report that Australia is the only country
to succeed in achieving a sustained improvement in international
competitive position over the last few years. That, I think,
is a compliment indeed.
There are clearly some undesirable aspects. There are clearly
dangers ahead. Inflationary pressures are rising and we have
had to do something about that. Unemployment remains as a
continuing problem.
The new dangers have largely been introduced by international
pressures on oil and on beef. over the next few months our
inflation will be higher than we anticipated at the time of
the last Budget. But with oil and beef out of it, inflation
to June would have been pretty much on with the Budget estimate
of last year. If we hadn't acted decisively in May, I think
we could then have been justifiably criticised as not
responding to new pressures which had emerged since the time
of the last Budget.
But the Budget itself builds on existing achievements.
It responds to new pressures that have emerged. We don't sit
back and blame what has happened overseas and say we can't
do anything about it. We respond to it appropriately so that
the Australian economy can be put in the strongest possible
position, maybe even more competitive so that we can do better
than North America, as we are, do better than the United
Kingdom and France and many other countries, as we are.
I don't want to hark on the past, but I do want to quote
one or two statistics to show how we are doing better than
countries overseas. But in 1972 inflation was about 5 per cent
and it was below the OECD average. When we took office
inflation was about 17 per cent and 5 percentage points
above the OECD average. In the last six months our inflation
rate has been down to about 9 per cent, nearly 3 percentage
points below the OECD average. So long as we can maintain
that performance, Australian manufacturers, employers, can
have confidence in being able to do better in the Australian
market and being able to get out further into export markets.
-4
There are a number of reasons of course, why our performance
is better: restraint in expenditure, restraint in wages
policy, and responsibility in our overall approach to Government
policy. The Government has restrained expenditure I think much more
than many people realise. Expenditure reached 30.3 per cent
of gross domestic product in 1975-76, and if we compare the
figures on the same basis you have to make an adjustment
for family allowances it is now a little over 27 per cent,
a substantial reduction over the three and a half year period.
I thi4nk it is not generally understood that Commonwealth
Budget outlays in real terms in the three years to 1972, that
is under a former Coalition Government, grew by nearly
per cent a year by 4 3/ 4 per cent a year. Too much.
In the three years subsequent to that they grew by a massive
per cent a year in real terms. That was much too much.
In the last three years, in-spite of some pressures where you
need additional expenditure, real expenditure has been about
static, has grown less than 1 per cent a year. No Government
in the history of Australia, State or Federal, has exercised
that degree of restraint in its own expenditures.
We have rigid ceilings on the Public Service. The number now
is about 12,000 or 13,000 less than when we took office.
If the recruiting programs of our predecessors had remained
in force, there would have been 70,000 public servants more
costing untold sums; more to pay and to house and to provide
the Programs that would keep them partly occupied..
This achievement is all the more notable when you consider the
very real need. for expenditure on social welfare, defence
and if I may say it in scne aspects of support for industry
itself. In social welfare how many of us understand that due to
demographic changes, due to an ageing population, due to the
fact that many returned servicemen from the last world war
are now approaching 60 and therefore qualify for the service
pension, for many reasons, in 1968 there were 176 welfare
recipients for every 1,000 people in the workforce. In 1978
that number had grown in 276 for every 1,000 people in the
workforce. When everyone says to us restrain expenditure, cut out welfare
payments, cut out payments for education, cut out payments
for health, does anyone really mean that we should knock off
or reduce payments to repatriation pensioners. Does anyone
really believe that we should reduce payments or make life harder
for people who are in old age groups and who are receiving the
pension, or invalid pensioners, or to incapacitated people,
because that's where those funds are going in income support
payments to a large part of a slightly ageing Australian population.
Quite obviously those figures 176 for evpry 1,000 in the
workforce to 276 for every 1,000 spell out in stark terms
the additional calls on a Commonwealth Budget. They are not
calls, I may say so, that fall on State Governments and
their Budgets, because it is we who have the responsibilityfor
income support payments for those in the Australian community
who need it. If people say we should cut into this
expenditure let them be very particular about it and say
precisely which income support payments they want reduced, cut
out or abandoned. Nobody advocates cutting those particular
paymentI--s. Wie haven't done it.
But then let's look at defence. This year we are providing
over $ 280 million more, nearly 11 per cent over last year,
because we believe there is a very real defence need and we
believe it would be wrong if we didn't spend additional
sums on defence.
Also, much greater sums are being spent on support for industry,
export incentives in particular $ 20 million to $ 170 million
in a year. Admittedly some back payments being caught up, but
a much more expensive program than we envisaged when it was
introduced because it has been much more successful than any
one dared to predict when it was first introduced. That is a
good thing. I hope it is more successful in the future.
That has just been a larger charge on the Commonwealth
Budget in future years if that is what has happened. But we
won't cry about that. We will be glad because that is the
purpose of that particular proposal.
But in defence, we have been able to lift the sum spent
on capital equipment from 7 per cent to 15 per cent of
the Budget. We have been able to reduce the amount spent on
wages from 60% to about 50% of the defence budget, getting
better value for dollar, putting more money into hardware
and infrastructure where it permanently improves the quality
of Australian defence. We try and spend as much as we can
on Australian equipment. There is a defence industrial
committee. It maintains close links with industry. The
Government has very particular programs designed to make sure!
that defence dollars are spent in Australian industries wherever
that is possible. We do that for all dollars spent by the
Commonwealth Government in its purchasing programs.
Jim Killen,' in 15 or 20 minutes time will be making a statement
on defence in the Federal Parliament. One element of that
is a particularly pleasing one and I hope you also will be
pleased with it. Two years ago we had a Cabinet submission
which would have involved giving a contract to a French firm,
I think French but certainly overseas, for the construction of
a major supply ship for the Australian defence forces. Vic Garland
will correct if I am wrong but I think the contract was
something like $ 70 million or $ 80 million. We said: " Look, this
isn't good enough. we think Australian industry has not been
given an adequate opportunity to compete. We want you to go
back to Australian industry, back to Australian firms and
see if we can't place this contract in Australia. Even if that
does mean some delay in getting the new vessel into defence
service" / 6
-6
My colleague, the Minister, will be announcing that that
contract has now been placed with an Australian firm and
we haven't had to give any preference. We would have it we
had had to. But we haven't had to give any preference in
terms of dollars and price for the Australian contractor
because they have beaten the overseas contractor by many
millions of dollars in their final tender.
That is an area where people said Australians can't do it,
Australian industry can't do it. Well they can and they have
and it is time, I believe, that we began to take a greater
pride in the capacity to perform, of Australians, of Australian
workmen and of Australian industry and entrepeneurs.
I think there is a capacity of many of us who could well
exhibit that Dride in Australian workmanship.
How many people now drive expensive imported cars because
they are expensive imported cars, instead of buying a
world-class home made product. One of the things you might
have noticed in the Budget, there is a gentle inducement
to buy the home made product instead of the expensive
imported cars.
Mr. President, the Budget reduces the deficit very very
substantialy indeed, from nearly $ 3 billion to $ 2.193 million,
a reduction from 3.4% of gross domestic product to 1.9% of
gross domestic product. That is a most significant change,
a most significant advance in this Budget. The estimated
deficit is a lower percentage of the gross domestic product
than would occur in Germany, Japan, the United Kingdom and
Canada and many other countries. We have done better than
most OECD countries in getting the burden of over-large deficit
down in this Budget.
In particular the estimated domestic deficit this year will be
just under $ 900 million, much less than half that of last year.
This is important, because it leaves room within the markets
for private sector demands. It assists very greatly in the
conduct of -monetary policy, especially given the containment
of capital raising programs of semi and local governments,
a decision which we came in for a mild degree of criticism
about over the course of last June. Of course, it means that
there can be greater funds for business investment and generally
for housing.
It obviously exerts a further downward pressure on inflation
which was sorely needed, but obviously further strengthens
the Australian dollar and thus helps create the conditions
for continued expansion and confidence in business.
As I believe there are some hard-headed people who have been
making those very judgements over the last two days. I don't
believe people invest on the share market just to boost the
Government's confidence or to make other people feel that the
Budget was a good one. They spend their dollars in a hard-headed
way. A few people on the share markets have been voting a vote
of confidence in Australia over the last couple of days.
7
There is an odd argument going on at the moment. Some people
are saying that a tax cut is not a tax cut. Well, if anyone
wants to say that a tax cut is not a tax cut, let them volunteer
now to give the tax cut from the 1st of December back
to the Federal Treasury. I don't think there will be too many
volunteers for that.
But if people want to argue that there should have been tax
indexation instead of a tax cut, that is a fair enough argument
and I can understand it. But if people want to argue that an
an income rises, they should not pay income tax on those greater
dollars that they earn, I think that is the greatest piece of
humbug and nonsense that I have ever heardin my life. If
people have a larger income, obviously they expect to pay tax
on the additional dollars they earn. But there is a tax cut.
I could understand it if people say it should be greater. I
can understand it if they said it should have been tax
indexation instead of the tax cut.
Last May, John Howard said we could not afford both. He didn't
even say we could afford one. But we have been able to afford
one of them and we remain just as firmly committed as we ever
did to tax indexation, but only when we can do it financially
and responsibly. We are also looking for some assistance to
the wages tribunals in being able to establish those
responsible conditions by an exhibition of some restraint in
wage decisions.
The Budget re-emphasises our commitment to monetary and
fiscal responsibility, to the reduction of inflation and
to an environment which will encourage growth and development.
It is a Budget in which income taxes have been lowered
in which there is a degree of smaller government and an
increased role for private enterprise and for private
initiative without which the wealth and prosperity of any nation
will wither and die.
There are policies in the Budget which promote growth, promote
development. It does embody some special policies for
business, for the rural community, for a further amplication
of our energy programs. It builds on past policies. You well
know what we have done with the investment allowance, with the
expanded charter for the Development Bank, now being able
to lend to all business sectors. The changes to the Industries
Assitance Act-amended to take account of Government policy
and employment and social consequences of its recommendations,
something which it doesn't seem to do entirely even with those
causes in the legislation.
The Government has established preference for Australian
products for all its own purchases, and in some cases a very
substantial preference.
In 1978 we reduced the sales tax on new motor cars and now
there are some new initiatives designed to encourage development
of more efficient, export-oriented and competitive industries.
Division 7 tax which I suspect some of you have heard of
the first Budget increased the retention allowance from 50% to
That is now increased to 70%. That is a help for small
businesses.../
8-
Export expansion grants have vastly increased fromn $ 20 million to
$ 170 million through the course of this year. Some of that
is picking up a backlog in payments, but the final demand
through this year would even be to an extent higher than that
if the program continues to expand as it has up to the
present time.
Export market development grants are up very substantially.
Industrial research and development, under Ian Macphee's
guidance, came to $ 24 million last year, $ 24 to $ 32 million
this year, aiding initiative and enterprise throughout
Australian industry. A depreciation allowance for
tax purposes on buildings providing traveller accommodation,
encouraging people to pay more attention to the development
and expansion, the great opportunities open to Australia
through an expanded tourist industry.
For the rural community, the special depreciation allowance
reappears for special storage facilities, for grain, hay or
fodder. I imagine that would put a gleam in some primary
producers eyes.
The national water resources program has been expanded by
The main elements of our energy program is designed
to promote conservation of a scarce resource, designed to
encourage people to move into alternative supplies of energy,
designed to encourage exploration and development.,
Import parity pricing for oil is an essential part, an
essential wea; pon in pursuing those three basic and vitally
important objectives.
But there are other policies to encourage the use of L. P. G.
Commonwealth cars are going to be LPG fired wherever that
is possible, for the future. We have removed sales tax on
conversion kits. The Budget continues this thrust. The
conversion cost from oil-fired industrial equipment there
will be a 40% investment allowance if it is new equipment
and it will be written off immediately if it is a question
of conversion of existing equipment away from oil.
In addition to that, the advantages and encouragement for
offshore exploration for oil is now being extended to onshore
exploration for oil. That again, I would hope, will encourage
greater exploration. I also hope greater exploration by
Australian firms who might better be able to meet the costs and
obligations of the search onshore than offshore.
In terms of our broad social objectives, the decisions we
have made have been fair and they advance the cause of social
reform. Because inflation, for reasons that we all knfow, is
higher than we envisaged at the time of the last Budget, pensions
are indexed twice a year and not once.
But other things I think have been overlooked. Over three years
we have provided funds for 15,000 beds for aged and disabled
people through the programs of this Government. Through a
period of financial stringency we haven't forgotten obligations
to people who need assistance. / 9
I 9
Over the last three years there has been a tremendous
expansion of assistance for disabled people through
sheltered workshops and special programs to assist them.
The Budget continues and builds on those programs. The
eligibility for pensioner health cards is going to be ext6nded
to supporting parent beneficiaries and their are extensive
changes in assistance in the repatriation area.
The Budget is not just an economic docient. It is also a
broad social document and one of important social consequence.
Ultimately our capacity to advance in a social sense, depends
upon the strength of the Australian economy, what we can do
for ourselves and the kind of world we are living in.
I would like to conclude by just talking for a moment or
two about the kind of trading world we find now and which
I expect to see into the 1980s.
It is not a particularly encouraging one, but that doesn't
make me gloomy or pessimistic about Australia's prospects.
Far to the contrary. For a whole number of reasons inflation
is too high and growth in world trade is too low. Growth in
trade over the last 7 or 8 years has been about 4 per cent
year. Not enough to reduce the numbers of unemployed in the
advanced western countries. In the previous 20 years it ran
at about 8 per cent a year, through the years of low inflation.
Unless the major countries can reduce their inflation, growth
in world trade is likely to be low and unemployment around the
world is likely to stay high.
I think -the greatest prospects for being able to achieve
a breakthrough on the world inflation front is if after they
get through their present time of difficulties the United Kingdom
can join Germany and Japan and the three of them persuade
other major industrialised countries, and North America, that
they have to pay much greater attention to the inflation problem
than they have over recent years.
But even if that doesn't happen where. does Australia stand?
I believe we can have confidence in ourselves. Even if the
world see it as a difficult one and a sluggish one, there is
no need for us to be timid about our own future, because we
have many advantages and it is up to us to develop those
advantages and explore them to the full.
Our inflation is under that of many other countries. It is
our intention that it stay that way, so Australian industries
will become more competitive, will get out further into
overseas markets exports to new countries and that will
provide more jobs, more work, more opportunties for Australians.
But also, if we maintain economic and political stability,
maintain a tightly run ship in economic terms, we have a great
capacity to attract investment to this country, as indeed we
have over the last year or two. Approvals made
by the Foreign Investment Review Board in the June Quarter were
running at an all time high about $ 1,400 million worth of
approvals in that particular quarter. $ 2,000 million worth of
new development and investment in the coal industry.
$ 2,000 million worth in thealuminium-bauxite industry.
That is because Australia possesses resources, provides
a stable environment and economic policies that are
encouraging growth and investment and development.
Therefore, because we can run our economy well, because
we are a resource-rich nation and we are attractive and
have policies that are attractive to overseas investment,
there are greater opportunities for people to work in
partnership with Australia, help develop those resources
and provide greater opportunities and work for Australians.
Government policies reinforce that.
The infrastructure financing proposals agreed to with the
States involve the expenditure for something approaching
$ 2,000 million over the next few years $ 450 million this
year on great infrastructure developments that will reinforce
the resource projects undertaken by private enterprise.
So, even if world trade is sluggish, with the right policies
we can, if you like, a larger share than we otherwise would,
maintain Australia in a securer position, provide more
activity and opportunities for Australians than would otherwise
be the case. But it is up to us to capture the opportunities,
to have confidence in ourselves and if we do that, there is
nothing that we can't achieve. 000---