( AS DELIVERED)
PRIME MINISTER
FOR M4EDIA 30 October 1980
SPEECH BY THE PRIME MINISTER TO THE
FINANCIAL TIMES CONFERENCE
Mr Mullens, conference guests, ladies and gentlemen. Thank
you for your welcome. May I in turn, both personally, and on
behalf of the Govei ,, ment, welcome all the participants to this
Financial Times Conference.
The Financial Times is to be congratulated not only on choosing
a most appropriate topic but on being able, so it seems, to time
it well in relation to the election.
The start of a new period of Government in Australia provides perhaps an
opportunity to pause for a moment and to try to put some of the
developments over recent years in the economy and economic
policies in a longer term perspective.
It also provides an occasion to look ahead beyond the immediate
future and to consider the sort of policies that are likely to
be required if the exciting potential for economic development in fact
is to be realised. One of the lessons of the last ten years which
sounds obvious but which has not yet been fully learned is
that economic growth is not an automatic process.
There has to be an environment conducive to economic development
and economic achievement; and that is something that has to be
worked at. Governments, of course, have important responsibilities
in this regard. But Governments cannot do it on their own.
Businesses and trade unions and, even more importantly, perhaps,
individuals have a responsibility not only to have regard to the
longer term interests of the community in their own actions, but
to support Government policies that are working to that end.
Government in Australia has to operate within a time frame of
three years. But policies frequently take much longer than that to
come to fruition and, unless they receive recognition and
support in the meantime, they can become difficult to sustain.
/ 2
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This is very relevant to the period ahead, when there will be
a particular need for policies that have regard to more than
just a year or so into the future if full advantage is to be
taken of the burgeoning opportunities for development. You
will probably all be aware by now of the very large figures
that have been produced by surveys of businesses' forward investment
plans.
It is not necessary, therefore, to elaborate again on these
here, except perhaps to emphasise that the Government is well
aware that the realisation of these forward plans is dependent
upon having the right environment. We recognise also that, as
part of having the right environment, there will be a need for
this investment to be spread over a period, so as to avoid
inflationary pressures and to maintain economic stability.
It is also important to appreciate that, while a good deal of
this large planned investment is related to resource development,
it is more broadly.,. based than that. With a return to more stable
economic conditio increased investment opportunities are
opening across a wide range of industries in Australia.
It is not always fully appreciated that, over the last 20-30 years,
there has been a significant broadening of the base of the
Australian economy. Thirty years ago, over 20% of national output
came from the rural sector, which was highly dependent on
fluctuating export markets.
But, during the last 30 years, there have been notable structural
changes. Although they still contribute only a small proportion
of national output, mining industries have expanded significantly
in relative terms, as have tertiary industries.
The net result of these changes is that the rural sector's share
of output is now only approximately the same as that of miningsabout
5% of GDP.
However, notwithstanding that large relative decline, the
absolute level of rural output has almost doubled over the
last 20 years. Those who predict a gloomy future for manufacturing
in Australia would do well to take note of that.
The increasing opportunities for expansion in mining and tertiary
industries suggests that there will be a reduction in the relative
size of the manufacturing sector in the years ahead; but this can,
and I believe will, be accompanied by growth in output and
expanding investment opportunities.
There should, indeed, be great opportunities for internationally
efficient manufacturing industries in areas such as minerals
processing and the servicing of growing ex O t markets in Asia.
Now, the question you have really asked me to address is how to make
sure that these and other opportunities are taken.
Perhaps-the first thing to acknowledge is that, no matter ho' q
good the resource base, no matter how promising the export markets,
economic development will be frustrated unless there is a
reasonable degree of social and political stability.
Community attitudes need to be generally conducive to and
sympathetic with such development and the investment needed
to achieve that; it must therefore be an important aim of
Government to maintain a community consensus on broad
objectives. Australia is more fortunate than most in having.
that kind of a broad consensus.
There are many reasons for this such as fewer social divisions.
and a more equal income distribution which cannot be explored
here.
At the same time there are, inevitably, matters on which fundamental
disagreement about objectives will arise from time to time; where,
as a result, Government has to take decisions that some will see
as cnfrotingther interests or their view of national interests.
We cannot expect the running of a country to be like rowing an
eight where everyone has to pull together if the boat is to have any
chance of winning. There will always be some who, seeing their
perceived interests threatened, will pull their oar against
Government decisions or, at least, not in time with them.
That is something that, in a democratic community, we have to
expect and, within limits, to live with.
Equally, it has to be recognised that Government would become
impossible if decisions could never be in conflict with views
of particular-interest groups. While paying appropriate regard
to minority rights and interests, Government must therefore
implement policies on the basis of its assessment as to where
the broad national interest lies.
This is very relevant to creating the appropriate environment
for investment. In framing policies Governments are continually
faced with the need to decide between competing economic and
social goals. We all know that we would have a faster
rate of economic development if there was no need to take account
of possible effects on, for example, the environment or
traditional Aboriginal areas. But these are matters which
Governments must take fully into account if a broad social
consensus is to be maintained. This is, of course, a
widely accepted function of modern Government.
What is less widely accepted and even less widely understood
is that this can involve sacrificing the economic interests of
other groups as well as retarding national economic development
and living standards. It may be more a matter of the speed at
which economic change is-to be permitted rather than any absolute
prohibition.
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Where important differences exist in community attitudes, or
where arrangements have existed virtually undisturbed for many
years, it may be in the longer term interests of development
to allow change to occur more gradually.
The Government's policy on uranium, for instance, has sought
to ensure a pace of development that allowed time for
community attitudes to clarify and for appropriate safeguards
to be instituted.
Notwithstanding continued opposition from a small section of
the community strongly antagonistic to such development, the
Government is satisfied now that there are both appropriate
safeguards and a widespread consensus in favour of uranium
mining and export.
Accordingly we expect such development and investment to push
ahead, helping to meet the growing demand for additional sources
of energy and contri-ibuting to the national economy. Equally,
as the recovery irthe economy proceeds and gathers strength, there is an
increased capacity to allow structural change arnd this, in turn, allows
economic succes's to build on itself as resources move to
areas of the economy where higher returns and profits can be obtained.
The problem of the appropriate speed at which to allow
structural change is a good illustration of the continuing
need to balance possible damage to investor confidence of
allowing rapid change against the costs involved if economic
change is prevented to the detriment of the community at large.
This is part of the wider problem of the continuing need to
weigh the costs of regulation of business and of intervention
by Government. The Government's objective has been and remainsto
avoid sudden, large changes. Over the next three years, we
will however be closely examining existing arrangements that
operate to inhibit investment and economic change.
Wle are conscious of a growing feeling in Australian society
that, after experiencing a period of economic difficulty,
there is now a wish for faster growth in living standards.
But at the same time, we also be conscious that that can only occur
through real growth in the economy itself.
Economic development and change will be encouraged to proceed,
unless there are clear national interests to the contrary.
There-will, at the same time, be a need to ensure that thefruits
of economic growth are appropriately distributed.
This is an important aspect of the Government's responsibility
. to maintain a social and political climate within which
economic development and investment can proceed without
creating community tension. There are many difficult issues here.
One of the more important concerns the need to make sure -there is
equitable sharing of the burden of taxation. That is a
subject on. which opinions differ widely but to which we
will be giving close attention over the coming years.
The Government is particularly concerned at the increase in
recent years in the extent of tax avoidance. We will
continue to legislate against such schemes whenever they
are identified and to take such. other action as can be
devised appropriately..
The Government will also be concerned to make sure that there
are adequate oppox. tunities both for Australian investors to
participate in pJfojects involving foreign investment and
for the Australian community at large to be seen to benefit
from them.
Fortunately this is now widely accepted, both by foreign
investors themselves and by the Australian community.
Australia is going to need increasing amounts of foreign
capital to develop its natural resources and other
industries but unlike many other countries we do not
have to provide special tax incentives to attract it.
One particular government responsibility a key one in
shaping the investment environment concerns economic
management. Government economic policies naturally have an important
influence on a major determinant of investment profitability
as well as on the confidence with which businesses can
plan ahead in the knowledge that sudden, large changes will
not be wrought in economic conditions.
Over the last five years the Government has in fact approached
the task of economic restoration in a medium term time frame.
As the last O. E. C. D. survey of Australia put it,
" The management of the Australian economy has remained
broadly unchanged since late 1975 when the authorities
embarked on a steady policy approach, which, through
relatively restrictive fiscal and monetary policies,
aimed at removing the imbalances impeding a return to
sustained non-inflationary growth over the medium term".
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We realised that, after the economic upheavals through
which the Australian economy passed a few years ago, it
would take time to reduce the imbalances and to re-establish
a framework within which businessmen and consumers
could again begin to take decisions with confidence.
Against this background, it is surprising to hear some
suggestions that the Government's economic policies may
have been too " austere". It is difficult to see how such
suggestions could be rationalised in view of the appraoch
which is summed up in that OECD quotation.
There has been no sudden, dramatic action to reduce demand
or to expose the economy to increased external competition.
we have instead pursued a steady, moderate but persistent
approach towards the restoration of economic health.
Of course, this has necessitated relatively restrictive
economic policies because our main objective has been and
remains to reduce inflation and inflationary expectations.
We achieved a considerable measure of success in that
regard during iur first period in office. More recently,
in common with other countries, we have experienced some
setbacks. But whatever shortcomings there may have been in our handling
of that situation, it cannot be denied that we succeeded much
better than many others in containing inflation, so that our
international competitiveness was maintained and in many
cases substantially improved.
This phase of increasing world inflation has now passed, at
least for the time being. overseas influences should
therefore become a positive factor in helping to reduce
domestic inflation. Even so, there will be a need for close
attention to domestic economic policy settings, a matter
to which I will return shortly.
Before doing so, however, I want to say something about why
the Government regards it as so important to reduce inflation
rather than, as some would have us do, to " live with" it.
There are,' of course, many arguments against that view
and it is not the occasion to elaborate on them here.
In the context of the present conference, however, perhaps
the most fundamental reason is that inflation creates such
uncertainty about future real incomes that both businesses
and consumers are forced to foreshorten their time horizons.
In the case of businesses, uncertainty about future
profitability in real terms increases risk and inhibits
investment, particularly investment of a longer term nature,
as well as inhibiting employment.
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This is exacerbated in circumstances where wages are able to
rise faster than prices, as happened in 1974 in Australia
and as tends to happen in modern industrialised countries
when inflationary expectations are high.
Similarly, uncertainty about the future value of their
savings, and about future levels of real income, causes
consumers in these circumstances to be cautious about
their own spending.
The net result is lower levels of aggregate spending in
real terms, which means lower employment and lower living
standards for evertybody; even more important in the longer term is
the reduction in future growth potential resulting from
lower investment.
In earlier times it was widely accepted that, if an
economy fell into such a depressed situation, a government
could initiatr a recovery by increasing its deficit
through higher spending or by providing additional
income to individuals or businesses in the form of tax
cuts. It is surprising indeed that there are still a few in
Australia who believe that such Keynesian policies will
work -in circumstances where inflation continues at
historically high levels.
Such policies have been tried in recent years in all major
countries overseas, as well as in Australia under the
Labor Administration. Experience suggests that, to the extent
that there is any resultant increase in activity and
employment, -that this is only temporary. It is indeed now
widely accepted that the main result of such
policies is likely to be a worsening in inflation and more
unemployment and a delay in full economic recovery.:
Even the international economic organisations, such as
the International Monetary Fund and the OECD, which were
for so long enamoured of such ideas, have in recent years
increasingly pushed them to the bottom of the list.
If that is so, it may be asked, why do not all governments
adopt economic policies that would eradicate inflation
The frank answer to that, I suppose, has to be the electoral
timetable. Very severe measures of restraint would be
needed to reduce inflation quickly, and to root out
inflationary expectations, and it would be difficult to
accomplish that and effect a substantial recovery in
activity and employment within the normal life of
most governments. / 8
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It may be that, with a five year electoral cycle,
Mrs. Thatcher's Government's task will be easier
I certainly hope so, and wish he ' r well, though in the difficult
economic circumstances in which her Government camne to
office, it may be remarkable indeed if a significant
turnaround in real growth can be achieved in the U. K.
in much less than the fi-ve years allotted the Government in that country
Whatever approach is adopted, it is important to recognise
that the pursuit of anti-inflationary policies has the
interests of the unemployed very much at heart. It is
only by controlling inflation that there can be a sustained
increase in the pace of economic activity, a sustained lift
in the provision of jobs, and in due course a sustained
reduction in unemployment.
It is true that, in the meantime, those are are unemployed
suffer : but, while that is to. be-. greatly regretted, the
alternative p licies proposed would only make the position
worse. It should be noted also that the " hard core" of unemployed
is smaller than is commonly supposed. It is not widely
appreciated, for instance, that of those unemployed each
month around 20 per cent on average find employment during
the following month.
The Government naturally wishes that more progress had
been made over the last five years, both in relation to
economic recovery generally and the unemployment problem
in particular.
But in which other countries has the unemployment problem
been overcome, or even significantly reduced, notwithstanding
that significant resort has been had in most overseas
countries to job creation schemes of one sort or another
Which other contries experienced the same disruptions
and imbalances that occurred in Australia under the
Labor administration.
The facts are that in Australia unemployment has been stabl. e
now for about two years whereas it has been rising in many
overseas OECD countries; and in Australia there has been
a significant strengthening in economic activity ( which
is continuing) whereas in the OECD area as a whole there
has recently been little growth and there is little
prospect of much improvement in that situation in the
near future.
The Government believes, therefore, that the persistent
application of anti-inflationary policies is now starting
to bear fruit in Australia and that it holds out the only
real hope of producing the investment spending needed to
raise productivity and hence living standards, and to
reduce unemployment. The Government acknowledges that
anti-inflationary policies will not be sufficient on their
own either to cope with unemployment or the ' employmeit
requirements of businesses.
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But we reject the idea that the unemployment problem can be
handled through make work schemes, which have failed overseas
and which fall into the fatal error of treating symptoms rather
than underlying cause.
There should be scope, on the other hand, to ease the unemployment
situation and to help meet the increasing demand for skilled and
semi-skilled labour through improved training, particularly of
young people. The Government is helping in various ways but
State governments, businesses and individuals themselves.,
also have important responsibilities in this area.
We recognise, of course, that an adequate supply of the right
type of labour is not just a inatter of training, We will be
looking also over the next year or so as resource investmhent
gathers pace, to skilled and semi-skilled labour from over Iseas
countries. There will moreover, be a need for greater flexibility in wage
rates than is provided under the present wage determination
system in order to restore into the wage structure the incentive
needed to bring forward an increasing supply of skilled labour.
Regrettably, the st'ructure of wage rates which the wage tribunals
have put in place ip, 7not only contributing importantly to shortages
of skilled labour but is deterring the employment of particular
labour categories, notably the unskilled and the young, and is
thus an important factor in the continuing high level of
unemployment.
While we accept that unemployment remains a problem, it is important
not-to overlook the benefits that-have flowed from the Government's
anti-inflationary policies. The most obvious benefit to be seen
flows front the improvement in Australia's international
competitiveness.
As a result Australian industry is now much better placed to compete
with imports and is in fact producing increasing exports not only
from our resource based industries but from a very wide -range of renufacturing
industries. Over the last-two years, exports of manufacturers
are estimated to have increased in real terms by no less than 23 per
cent, showing quite clearly that Australian manufacturing industry
is well able to compete successfully against international
competition when economic circumstances allow.
But the benefits flowing from anti-inflation policies have not,
of course, been limited to the restoration of international
competitiveness. There has also been an improvement in business
profitability which is, in turn, now being reflected in an
upsurge in domestic and foreign investment as well as in higher
enmployment. Over -the last year, indeed, total employment has risen by more
than 3 per cent, and no less than 200,000 additional jobs have
appeared in the economy. If the participation rate of those over
wanting to be in the workforce had not increased unemployment would,
in fact, have fallen by around 100,000 over . the last 12 months. There
are, moreover, good prospects for a continuing rise in employment.
In short, anti-inflationary policies are creating jobs.
As they do that, they will also begin to the extent that the
structure of wage rates allows to reduce unemployment also.
There are also indications that, with the faster growth in
employment and an improvement in consumer confidence, growth in
consumption expenditure could now be moving on to a somewhat
faster track.
In short, even despite the effects of drought, there is a good
prospect that 1980-1 could be the third year in a row to see a
faster increase in the pace of domestic activityin Australia. pat~ qaa.. ly,
at a time when there is expected to be little or no growth in the
OECD areas as a whole that is, surely, an indication of the
benefits of anti-inflationary policies.
A key element in our policies has been the exercise of restraint
on public sector spending, and on public sector calls on financial
markets exercised through the Commonwealth Budget. Since 1975-6,
Commonwealth Budget outlays have been reduced from about 30 per
cent of GDP to about 28 per cent and the budget deficit from
nearly 5 to just over 1 per cent of GDP. These are significant
achievements. We would have liked t6have made faster: progress but were constrained
from doing so by the sort of considerations that I have already -mentioned. it,
is our firm objedtive to continue along this road and we are
conscious that, as the private sector of the economy picks up,
the need to do so is actually increasing, not diminishing.
For one thing, with the strengthening in private sector activity
more room will need to be made by containing and, where possible,
reducing public sector demands on resources. That is why, at the
last Loan Council meeting, we agreed with the States on the need
for government infrastructure expenditure to proceed in an orderly
and carefully integrated manner, to make sure particularly that
resources of skilled labour and the capital market are not
subjected to demands that would add to the inflationary pressures.
As I have indicated, we will also be working to further contain
public sector demands through containing the size of the Commonwealth
Budget. Apart from the growing need for this in terms of avoiding
strains on the economy, it will be an important objective of the
Government to minimise burden of taxation. This can only be
undertaken responsibly however, if it is accompanied by restraint, a
reduction in Government expenditure.
But we recognise that there is an increasing demand for greater
freedom of choice in the spending by taxpayers of their own
incomes and we believe that the significant improvements in
incentive that would flow from a reduced burden of personal income
taxation in particular would considerably strengthen the economy, so 1on
as this could be achieved without prejudice to other iinportayit economnic objectives4
For the present, however, the primary task ahead is to contain
the inflationary pressures that have emerged over the past year or
so, and to bring our inflation rate once againc firmly back onto
a downward trend and the last quarterly figure offers some
encouragement to that objective.
That will-, call, however, for firm fiscal and monetary policies
with as I indicated in the Budget Debate monetary policy
playing an enhanced role.
We will be aiming, as was indicated in the Budget, to secure a
significant reduction in the growth in the money supply during
this financial year. That, we believe, is essential if the present
favourable environment for investment is to be sustained.
There is no doubt that such a reduction can be achieved without
endangering the strengthening recovery in private sector activity;
sufficient finance will be available to permit growth in line with
Budget forecasts. The containment of inflationary pressures will
also require a slowdown in the rate of wage increases.
This is something to which everyone must contribute governments,
businesses, arbitral authorities and, not least, trade union
leaders and the trade union movement itself. It is surely time
that unions started to recognise that wage increases in excess of
productivity increases are not in the longer term interests of
their own members andO can only make it more difficult to reduce
unemployment. This is true whatever the form of a wage increase but it would
be Particularly true of the irresponsible claim for a 35 hour week,
given the very large addition to costs the granting of that claim
would involve.
We will be looking to the arbitral authorities to assess all wage
claims in the light of the Government's economic policies and the
need to reduce inflation. Australia has entered a decade which
has the potential to see economic development unparallelled in
Australia's history.
That potential will however only be realised if a favourable
environment for investment is maintained. The Government believes
that will require the continued and persistent application of firm
anti-inflationary policies and the pursuit of policies that ensure
that the fruits of economic development are equitably and
properly shared among all Australians. 000---
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