636 Fih Avene New YA NY 20 25''-40C
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636 Filth Aven: Je. New Yo.-k, N Y 10020 [ 2) 2 7 .40iO0
AUSTRALIA AND SOME WORLD ECONOMIC ISSUES
A SPEECH BY THE PRIME MIIl! STER OF AUSTRALIA,
THE RT. HON. MALCOLM FRASER, M. P.
TO
THE ECONOMIC CLUB OF NEW YORK 0N 4 JANUARY, 197
It is a great pleasure to be In the U. S. again and have the
opportunity to address this very important group of American
business leaders, 7 am also pleased to have the opportunity
to try to collect my bet with Arthur Bu. ns, a bet about which
I think, some of you may know.
When we met In Washington In June, 1977, he made one of his
few errors of judgement and bet me that Australia would not
get its inflation rate aown below this country's by the June
quarter of 1978. Well, we did., Doing so has not been easy
It never is.
I am sure that the anti-Inflationary measures announced in this
country two months ago by President Carter were not easily
arrived at either.
To announce measures of that kind shortly In advance of the
congressional election must have required considerable political
courage. And If I may say so, we In Australia have greatly
welcomed the policy decisions Involved,.
The contribution they are making towards stabilizing the value
of the U. S. dollar has as much; or more significance, for the
rest of the world as it does for the United States. / The
2
The absolute magnitude of U. S, tradeeans that even small changes
in the value of the dollar have large effects on the trade of
smaller countries.
In reflecting upon our own fight against inflation, I must say it
has taken us three years of hard slog to make the progress we
have made.
Throughout that period our poli: ies have been designed to reestablish
the pre-conditions for sustainable economic growth.
We have approached the task of economic restoration in a mediumterm
framework.
After the economic turmoil through which the Australian economy
passed a few years ago, it takes time to eliminate economic
distortions and imbalances, to provide a settled framework of
expectations within which business en and consumers can take
decisions with confidence.
America has recently been swept by initi& tives such as
Proposition 13 designed to restrain the growth of public sector
spending.
I am told that the eIections ; sst rlo,: ember showed that this is a.
political winner a& C-cs the U. S3
Well, the basic phillsophy reflected in Proposition 13 has been
alive and well In Austfalia for-the past three years.
We have rejected the nction that an economy can be kept moving
by continually bioating the public ector.
We have cut the growtn in Federal Government expenditures from
the astronomirl figure of 46 per cent in 1974-75, to less than
8 per cent. We still think that's a bit too high.
We have used some of the resultant savings to reduce taxes,
to put spending and decision-makinrg power back into the hands
of businesses and private individuals where it more properly
belongs. / We
3
We have legislated to keep Gaves-nment honest by providing for
indexation of personal income tax,
To encourage continuing economic groath we have provided tax
incentives for private investment.
We have not been abie to pass on all the expenditure savings to
the private sector because vie inherited an enormous budget
deficit over 5 per cent of n. D. P. We have set about reducing
it, and this financial year the deficit should be about 2.8 per
cent of GDoPo
We have cut back the rate of growth in our money supply. The
rate of growth of oUr M3 which incidentally corresponds more
nearly to your M2-has been reduced from around 20 per cent per
annum in the second half of 1975 to 8 per cent in 1977-78.
Let me now tell you briefly about how these policies have been
bearing fruit.
Our major success hs been in pushinq our annual inflation rate
down from about 17 per Cent in 1975 to about seven and a half
per cent. This is lower than the average for the O. E. C. D. area
as a whole and it is trending downwards,
In the light of the recent wage decision the Treasury has revised
its budget forecasti and anticipates that inflation will be under
6 per cent by the midle or this year,
Lower inflation is encouraging consumers to spend a higher
proportion of their disposable incomes. And this is reflected
in the fall of the personal savings tatio from its peak of a few
years ago,
Business investment, by both domestic and overseas enterprises.,
has been rising strongly, partly because of the greater business
certainty flowing from lower inflation, and also because of some
although not yet enough recovery in corporate profitability.
At the same time as we have been pursuing our anti-inflationary
strategy, we have had a growth record which stands up well
enough by international comparison, I do not want to give the
impression that we think all our economic problems have been
overcome. We still have some way to go, and this is most
obvious in the area of unemployment-/ There
4-
There are tvio frC& scrST. ta tna generall, one particular.
The gener a! r-e~ scv ha whEn a,, n e _ rt ' MY has been so f ractzlred
as the Aust-a Ian ecn~ my via3 a . e5oq it takes a time
forL the steady ao-11Ct! m6o ZJ 1_-Zp ut things riqht,
re-establish cohfaer.: ' in -ihE! and restore the buoyant
gro-w. th of ptiva Ze os7and that is ? udxi. ertal to growing job
opportuiiitie3s T he pa F. t1c U-1& a. r a 1r. ns that Our own
institutional wage frix'nq arr. an-eerntS ~ wh ere waqes are
d e te riin ed by a ri Ide2r; a ndGant -aDi coimi sslof have not
made the conrtritl they ñ h Id~* ; L'c recovery.
In most ma-: ketS wrier,& a -r~ du.-t ; s in iarplus supply, and people
want ta sell mmcfe : if It they seek : edue their Price. Ini
the labour ma, 2et, peoipl f ;-et that economic truism.
Even though ' Iabour i s 1n fiver supp1ly;, Le-i % n l eaders sti 17 seek
excessive via~ e is This plaii-sly imakes it harder to-get
people baCk inz5 jobs-,
Mr, Chairman,~ what 1 want to make e cezd ay is that we will
maintain the p-9-een; Steady cast of Dclicy until these problems
are overcome, 0:; t Alm is notz for* 1 inltance, to be satisfied
when we hal,; e racz;_ i 11il-tialn to 5 ent, but to go well
beyond. ! n a t-t n c ' ea sz ~ n t e -eS t te s business decisinils
mor Wik-n nI, lit distart-s the
relationsip b& v-ie: r~ i-es anai matk~ e s domestic business
less compnot inzt3S~ Y,~ : eates social inequities.
Too often, we: h'nre saer, K2r~ S OMe Mo~ derate though
imp 5',. tant pPf55m-nt 0n y to throw away the
gains~ whic cannotudsa-yp-lin
gaibnys QoU faro riiwhich
achievse a p e. t ed iri oye~ or bring any
lasting ecaneic brt Th_= ie Ic-s In Australia who,
now that we hav,; L roae lo jmuph pr-ojrz 13 the fight against
i I L 1 3 0 t W , e have no intention
of doing so : A CL -7T5Y Z i I y p roeYi de so. 1, e neaw
jobs, but at tnz. t. c ex-t '. rq ones_, as the ri se in
in f Ia ior , rY aX e L i wi h I i t aS e t ea d s t o a l o ss of
business an~ d czonsu;. er zofdee3 tes cnsumer demand, less
in ve stmen t ho t h by 61b me s t & flOA f0 n n~ ve Sto vs3 an d herc e
fewer jobs,
In the end n evJ kb s wfl o ry b e c-a -te d ifour e c ono~ ies q
faster than tey n~ ave ~ ee~ Fr~ t happen, the Coi~ strbints
which are F~~ en~ ig growth n the imbal ance
between wages and pfzd-._ t1 Jty, anu tr~ E ir,& deqLuaCY Of profits
will have to be rcvi, They wili inot be removed by budgetary
pum. p primin 1C / Those
9
We in Australia are determined to meet the challenges posed by
our enormous resource potential and the dynamism of our region.
To do so effectively, we shall need the help of overseas capital.
I cannot emphasise too strongly that Australia welcomes overseas
investment to supplement its already high level of capital
formation from domestic sources.
Development of our resource potential is going to require
considerable capitai funds from overseas. The total investment
finance required for that purpose over the next three years
could be nearly $ US 7 Billion and a major proportion of this
estimated requirement will need to be sought offshore. Figures
such as these are necessarily speculative but they will give you
an idea of the opportunities which are opening up in Australia
as we bring our own economy into better shape. Those opportunities
are, we believe, enhanced by the great markets opening up in the
countries immediately to our north.
We are a " natural" importer of long-term capital and are likely
to remain so as far ahead as one can reasonably foresee.
We are determined to create, through our general economic pblicies,
conditions which are favourable to the emoloyment of capital in
Australia, whether derived from the savinas of our own people or
from overseas investment.
We have laid down clear guidelines for foreign investment-and
they are being administered flexibly and fairly. I believe this
general approach is now widely recognised and supported by foreign
investors. it is increzsingly apparent that the chief deterrent
to investment is not sc much rules or guidelines in themselves,
but any suggestion that those rules may be subject to violent and
arbitrary change. Ours will not be.
Austral. ja has unlimited prospects and offers excellent opportunities
for investors. For its part, the Government is determined to
pursue the steady, sound economic policies which will make the
1980' s a decade of achievement.
zzr~ 55 P2P ' C~ ent the
the e ve 1. j iE * i t C, he
;~ Wt ( r tri* I 4) OB ioir , to$
250 t,% df ~ ai zi 3~ o r. nh4r o'ee i'tea tne
Ai~ v-iinsten -w? 6 be Cht-KSc n tn past decade these
Cau Un 1 e V i-ta h8, ep esi tounitr1es. i t is
reducing ij r;, f ; o2 tha ,-est of the world,
~ will help
Austzil i. iee. ct4-, rt % e 158C. 5. But these
and~ ni-v E -3~ 2 6 * Z nt bnde~ l qr& n ie
-, a
T 1d h~ c i i a T1rew
e -f will repre e
I
I
r" L~ V. tt~ c tha i: neripoyf( Len! t it inevitably bringis
p fo e p tab', e~~ nis~ t--, edp a. fl a* r. at the root of the
r Z, 6 C 1 i oneIZ -om. the central economicp
r G D1 5~ a~~ C ( I ncompet te counftries have looked
t. ri ~ e i c r, fr; ' C e 0mestic industries,
ri 1 2 wj s tha,? t th e c ou ntries a re
cur,"' er.: 3y sperdz: As aboiin $ US ~ i~ a year on a new fao:-
of Pi-tatioi~ s;, so clee job subs,& dles. These give
rds: y aq& lns. t imports n r
A f c m e n t a Icc t r i ty t o t. toP eniroaching Protectionism
an() T. r. eL! 3 ~ wd Ceaa ~ s held out by the multia
e a va de r, a Zot B w the HI. T. M. is to rp--Iie
its p*-ir~ iie th rncl tSL~ n be broadly based,
a e E. e s a -fe 6S r Cte6d -o inciustrial products they
wi r ~ r ~ ip: wn of world trade, These
In 6L St~ B~ pzolG'S c tsto 40 pei. cent Of the exports of
the rjdlu 1al i-iid courr~ r -et but onrly 20 Der cent of world
trace ini ho Ah~ i 5 pe., . in t 6o the exports of many
zil-in E. -recP.-ction of the averate
9 i-ietf1a Is by ht'; i-per cent a year spread.
evael zaint qemn plainly could
niaKe 1a-o z~~ uci: w~ 5e~ fding n world
~ r; set~ r~~ tor,-3 ' he H. T. N. may be t0 hellp
W. D; tt Cs!. AG * Z of world trade, ard it
6: e. 1h d v', ecti-nismr-in a,-riz: alrre.
AL ~ r xre s~ c-6Paz r y affected by growing
P es z a 6~ e F-u a-iIo s t half of our exports a-, e
a g -tra1 I winh been; subjected to quotas
embarqb~ es, variable e ; aes, ard dufiing of surpluses.
For eiTple, ' the EJC in T91.8 " U', S1J2 Billion in atOcultuta'
sppPtUw ih iUlue aprs 5 Bilon on * direct subsidies on
the export Dif siaheatl iry p oi. cts and Meats Miucn OT it
to c tu ditl~ ilzii-& 1-
If the M, T. N. i ohv real ~ c then it is essential
that t--ade in -gr1 cul iupr e ~ b ai~ sd* and I am cilad that
the U Admi levs it3.0 on th s EW Whet her
3
-6-
I believe that the pubilc does unders-: and that inflation is an
Illness and that firor it -al 1 grive our economies a
genuine stimulus to.* a: ds g-rowth and ful ' I employment.
I believe the rubil kricei that thos c--onmitted to antiinflationary
pal cies show, mor! e cont-r-n for the real well-being
of people than p~ liifSwho glil'y pursue short-term
stimulatory policies;. which will nro:! solve economic problems
and will in falct make -them worse.
Anti-inflation policies are the best way to shift the balance
back in favaut r', SK-takers inste;-. d-of loading the dice against
them. Attacking inflat ion ttrengthens na-ket-oriented system which
finds its greateSt supelriority ove-r " comimand economies" in its
capacity to handle zhane it is that very process of change
which, in the end, dellie * vet: csh e gooc-s and services which. people
want, at -the prices and in the P~ iae~ at which they want them.
Any EZ3? 1 tr tc;. remaif vita anrd vigorouls must be capable
of adaptai" on aic i r, e sind~ 6v~~ rt need to structure thei
pal ici es r; They inu~ t & a codate the fact that.
ecancrnles ate not Sxa but Lr-ntzit ies constantly changing
to tmeet fhe ~ h~~~ praeerences o-constmers both at ho,, ie and
abroad. Inflatior. r ~ t y 6& F7,& el oh 6pvdmestlc markets, no-ony
reduces an weakens the bas of our M-a. rket system,
it quickly fiews trr-,-. A-h into the 1nte. znational economy and
retards the devalcprsd oe Countries with high
in~ flation n pttv heir exports fall,, their
impo. rts crece depreciate.
It i~ b iraniz that lte. e ifle. dble exch-a nze rate which has become
needed princ~ paflly oetL'se cotmntrlez domestic Policies have
been inadequate is sometimes heralded as a significant advanze
in its own right.
It is true that., the ' fSle-edble excharge rate gives us another
weapon in our ecnicmlc armoury. .% jz vit should, however, be
recognised that it is= a weapon which co-moensates either for a,
Government's own n n1" ScY lrnade; uacies -or for the
domestic~~~ poiyiaeA& ne
Those who expeez : e~ rt to SEIMU~ ate the economy by
ine-Agasing Governent axpenditure t the first sign -that
inflation Is 1' aaH inA misundersta~ ii the nature and the
cture of the ec~ nomlic and social i~ n~ we are facing.
The fundamntal pCint is that the reauction of inflation-is
stimulato -y Of. itsetiT,_ It rees rihes consumer
confidence and the czonfidence of doimiestic and overseas
investors. Th5_ ie charjied altitudes a*; e then accompanied by
higher consumier demarnd and highe-f inve. stmen't and lower interest
rates.' That ps 1irn ~ -eate employment. Thus, I
utterly reJect ar e'~ nthzt ou po" Ieies show no concern
for unerr~ ploy-' ert an~ d the unemployea, On the contrary, it is
because or ou,! czner-n f-% r those things t-hat we have persevered
with the pofllcies whih vie know ai e e, entialif unemployment
is ever to be rediz: ed..
I believe " Chat the im~ otr~ of the fight against inflation
is now bet" Cza. ro3*~ e~ t! rstc6 err1d At the September
meeting~ of the 65cad of c'erosthe Secretary-General
of the EMI Van Lennep, sai that: " Unacceptably
high rates of inlit-in remnain the fun~ dam~ ental obstacle to getting
back to full e;, pz y,-e-rt.
The Annual, c Zo? tnz GA. TTO. 56 la Septembetr stated:. *" The.,
in distri_-' ts" rlj in" cree ased growth and
d Ymee 1 13 7 dt iStn;; Ublz Payments positions and more
stable e& rhanq Ttez--cy e6-cin; thei-r Inflation rates to the
levels expe flenzs ci the6T al -6 0 S
Just a few datys ago of Government of seven
devezoaped and dexzn : t , F i rFeC,,, n -sed in the cl earest
te xs th at I'rf I a 1 r i e ccisiicjn We all agreed that
the d~ onf, e dtiA 2 hr es-th of~ industrialised
nations and thE. f~ ties I~ ncreased grrowth in the
developing od tdc hj~ lt inf~ latics ba VigOVously combatted
both do-e~ t~ ca'-y 8F6d
Iti' of thl aa tne that tnese sentiments shou'ld
not remain marely seimtents, but -that ' they should be carried
through to the Toky" ftcnomic Sum~ mit ' A June,, and into the
policies of Cvr~ ns
It is somietiixes said tnat in d aeswhere-there are elections
every few yeafs it is 6dIT-7flcult tc; persevere with firm, antii
n f Ia t i o a y p Q e Ip ii iti Y even ex; pl ici tly i r some
cases this view -65 based up~, n _ z lovi CpInion of our demiocratic
elec-torates. Yri s j s an~ 303i that I do not share. What our
democrati electoratel do reqLi1re le~ l6ership and cons'tant
explanation ZTP1C 1