hAUfbTTR tALIA
PRIME MIVN õ ISTER
CHECK AGAINST DELIVERY EMBARGOED UNTIL 8. P. M.
SPEECH BY THE PRIME MINISTER
CEDA DINNER SYDNEY 21 OCTOBER 1983
It is eight brief months since I last addressed
members of this highly respected organisation.
I then did so in Melbourne in the middle of the
national election campaign.
The task which I then outlined was a formidable one
it was to nurture economic recovery, broaden it and turn
it into sustained economic growth.
You would all recall that we inherited an economy
in deep recession: inflation had been running at over 10 per
cent through 1982; Gross Domestic Product fell in 1982-83,
the first such fall since 1952-53; employment had plummeted
and the unemployment rate had risen to over 10 per cent.
It was a disastrous economic situation, which was
getting worse. It is true that some of the influences on the
economy that are beyond the control of government t-he
drought and the world recession will: be much more
favourable in the coming year than they were in the one just
past. However, the start to recovery which that will
bring -ust be coupled with policies that will promote,
sustain and broaden the recovery.
We are developing and implementing these policies.
In our brief time in office we have also sr: cu': ed
through the Summit and an extensive process of consultation
with the community a necessary change in attitudes.
There has been a change of community attitud-es, a
change of Governmr-nt attitude; a change from confrontation
towards co-operation; a chanqe from the oolitics of division
to the politics of reconciliation.
Provided we retain as I believe we wi ll the
co-operation of the community, our policies will nrovide a
firm basis for inroads to be made into the massive
unemp] loyment problem that presently confronts us.
Over the last few months, an increasing number of
economic indicators have been pointing to a halt in
Australia's economic declino, and more recently to the
beginnings of recovery.
The September em-oloymenrit figures released last week
are the latest hopeful sion.
An increase in employment of 51,000 in seasonally
adjusted terms, bringing to 80,000 the increase since we
changed the course of Australian economic policy at the
Summit in April, is oarticularly encouraging.
S. '' The ' Labo'r Party . in opposi. t ion frequently ' oointed
out th. a. t.-' the -human t agedy -of-unemployment extended beyond
the numbers shown in the official statistics to the hidden
unemployed, who had given up hope of finding jobs and
withdrawn from the labour force.
It is at once both a sign of renewed hope, and a
reminder of the dimension of the tragedy, that recently
n. u b. b he,. q. i. d-de em. pl. o. y. e h ay' beq u o..-se. e
work again. This is why the measured unemployment rate rose at
the same time as employment grew strongly.
Our policies are directed at creating enough jobs
to bring down measured unemployment as well as absorbing the
hidden unemployed. But we have no illusion that this can be done
quickly. We have tried to explain to the Australian people
that there is no instant cure to the economic ills that we
were elected to overcome.
Against this backaround let us briefly consider the
major issues for economic policy.
We promised during the election campaign an
expansionary fiscal policy, which would place a floor under
aggregate demand while private investment demand remained
low in recession. My Government has answered that challenge in a
controlled and responsible way, in its first Budget.
Among other things these fiscal policies entailed:
expanded caoital works programs;
stimulation of the housing sector, both public and
private; and
the community employment program.
Partly in response to our oolicies, the signs of
economic recovery include strong growth in new building
approvals; a pick-up in activity in many parts of
manufacturing; improved consumer confidence, already oartly
reflected in retail sales; and a slo,., ing in the rate of
decline of new investment commitments.
It has been-possible to provide more fiscal
stimulus than would otherwise be the case without risking an
acceleration of inflation because our policies are . suc ported
tb-yh e Incomes and Prices Accord and a monetary policy which
accommodates strong growth but not avoidable inflation.
Through these. instruments we aim to ensure that the
recoVery, is not-dis! ipated or' frittered ' away.
While we eschew the discredited " Fight Inflation
First" strategy of our predecessors, we nonetheless realise
that we must set inflation on a downward path if we are to
ensure that the recovery becomes sustained and more broadly
based as it gathers pace.
Apart from the direct damage to the Australian
economy that would be wrought by inflation at the rate of
the recent past, the continuation of poor past performance
would stand in the way of continued reduction in interest
rates. High inflation and interest rates discourage
private consumption and investment.
We believe that our Prices and Incomes Accord
requires support from firm monetary oolicies if it is to
deliver the deceleration of inflation that we are seeking.
You will be aware of the difficulties of setting
monetary policy on a course that is neither so restrictive
that it blocks sustainable growth in real output, nor so
loose that it encourages avoidable inflation.
Our policies aim to balance these two risks..
The task of finding the right balance is even more
difficult at a turning point in the economy, when there is
uncertainty about feasible growth in real output, and more
than the usual uncertainty about factors influencing the
velocity of circulation of money.
And the difficulties have been further compounded
in recent times by significant deregulation of bank interest
rates, which have caused savings bank deposits to increase
much more strongly than holdings of financial assets in
other forms.
This has contributed to M3, the monetary aggregate
which has been used in AusLralia for orojoctions of monetary
growth, expanding more rapidly than the narrower and broader
monetary aggregates, and so has exacerbated the normal
problems associated with relying on a single aggregate for
monetary policy purposes.
The Treasurer in the Budget Speech announced a
conditional projection of monetary growth for the current
financial year, that M3 would grow in the range of 9 to 11
per cent over the twelve months to the June quarter 19? 4.
The Treasurer said that policy would not focus
s. olely on M3, and that we -would he monitoring a range of
finandcial aggregate" ith covetage* bdth narrower and-brbaroder
than M3. The Treasurer also indicated that the projection
would be reviewed during the year in the light of trends in
activity and other relevant developments.
v e r. re e e t . Imo t h s f i g u e s, J6t
to the latest month" basis which attracts most attention in
Australia, have been running a little above the range
indicated in the Budget Speech.
These M3 figures reflect a great deal of past
history and are not inconsistent with our current June
quarter on June quarter projections.
Any revision of our expectations of real growth, or
marked continuing divergence between M3 and other
aggregates, would be examined in the mid-year review.
While international developments completely beyond
our control exercise their own powerful influence, our own
policies are directed towards doing what we can to support
strong, non-inflationary growth.
I know that there has been concern that the
Australian dollar has appreciated against the
trade-weighted-index over the past seven months, to a level
similar to that immediately before the March devaluation.
I am aware that this has removed a competitive
advantage enjoyed for a while by our exoort and
import-competing industries.
But I ask oroducers not to take too short a view of
these issues. The overall stance of our economic oolicies is
directed at improvement of Australia's competitiveness over
the medium and longer term.
In the short-term, changes in international
conditions can cause fluctuations in our competitiveness.
Producers should take some comfort from our clear
commitment to fighting ' inflation and unemployment at the
same time, which means that we will avoid holding the
exchange rate at artifically high levels, which a government
might contemplate if it was fighting inflation first.
Looking further ahead, we will ensure that there is
not excessive co. poetition between the public and private
sectors . for financ. ial resources as . recovery proceeds.
We intend to wind down the cu. rrent level of direct
Government stimulus to the economy as private sector
investment picks up.
This will limit undesirable pressure on interest
rates in the process of economic recovery, and remove one
threat to the durability of recovery.
. Of c. ou. rse., r. educ. i q that stim. ul. us.ø wi. l]. -not. be-.. easy:..
To assist, we have establ. ished an ongoing orocess
of expenditure review that will not only consider any
proposals for new expenditure, but will also look at
existing programs to ensure the greatest possible efficiency
and their continued relevance to the emerging needs of the
economy. In our first Budget we were able to reduce the
prospective deficit that we inherited by over half a billion
dollars, at the same time as we implemented much of our
program. We were able to do this without major general
increases in taxation because we made large reductions in
the programs and tax expenditures which we inherited.
In other words, we effected a substantial
reordering of expenditure priorities.
In future Budgets we would hope to continue to give
effect to that reordering.
As I stressed in my address to CEDA during the
campaign, Governments cannot sustain recovery on their own.
We require the co-operation and contribution of all sectors.
That is why the Prices and Incomes Accord is so
vital. As I said to you back in February the essential
function of the Accord is to create the setting for real
economic growth without this blowing out in self-defeating
pressures on inflation and the balance of payments.
It provides a clear framework for the settlement of
income claims. It serves as the basis upon which we can expect
claims upon the communi'ty's resources to be geared to the
capacities of the economy and the requirements for optimum
development. Successful imolementation of the Accord gives us a
chance to avoid the disruption caused by unnecessary
arguments about division of the economic cake which, in the
past, has A' led so oft'Sse n. a o' to part of thsu e caket. h being l. ost.
f* c m i r 0 u p
A b' ad base o'f cof u'ni'ty Suppor't' " now"'
Accord Importantly, some key elements of the Prices and
Incomes Accord received support at the Summit and more
recently at both the A. C. T. U. Congress and in the
Arbitration Commission's ruling on the National Wage Case.
At the National . Wage. Case the.. Government so. ught . tp.
strike a balance between short and longer term economic and
industrial relations considerations within the framework of
an effective Prices and Incomes Policy.
Accordingly we supported full indexation on a
six-monthly basis, on the condition that there should be no
extra claims. The Government argued and the Commission accepted
that ratification of sectional settlements should be refused
unless the commission judged that special or extraordinary
circumstances apply, such that they can be isolated because
of their special characteristics.
It is for the Commission to determine such
ci rcumstances. It is only if we can restrain growth in labour
costs and competing claims that we can pursue an
expansionary fiscal policy while winding down inflation.
My Government is committed to the success of the
Centralised Wage Fixation System now established by the
Arbitration Commission.
The principles articulated by the Arbitration
Commission recently amount to a new system.
The Commission's requirement that unions olace
th-ir signatures on commitments to no extrg claim.-is is
unprecedented.
The willingness of the A. C. T. U. and almost all
unions to commit themselves in this way is unori-cedented in
Australian industrial relations.
That such powerful unions as the A. M. W. F. S. U. are
willing to enter such commitments is a cause for
considerable confidence in the new arrangements.
Inevitably there will be problems, but the
advantages of two years of real wage stability and
industrial peace within the new system are so great, that
all parties have a great incentive to find solutions.
We have-inciicated our resolve and seek the
continued co-operation of all parties in making the new
system work. Both my Government and the A. C. T. U. will be doing
everything within our respective powers to ensure compliance
by all unions. It has always been our view that restraint cannot
be limited to wage and salary earners.
ThG Economic Summit declared that restraint in
income claims should be shared by all, including non-wage
incomes. In seeking to have this declaration implemented, I
have been impressed by the attitude of larger companies and
the degree to which they have indicated their support for
restraint. The Summit, of course, was the first demonstration
of what has since become a hallmark of my Government. That
is our approach to consultation, co-operation and joint
endeavour. One formalised manifestation of this approach is
our establishment of the Economic Plannino Advisory Council.
This Council has just concluded its second meeting.
Discussion ranged over a number of matters,
including the conduct of policy from the perspective of
ensuring long term recovery.
As time passes we would expect this body to orovide
a major forum for discussion and information exchange
between the Government and the community general] y.
My Government is concerned to restore conditions of
fairness and equity to Australian society.
This is an important objective in itself for a
Labor Government. In addition, we believe that this is essential to
community support for t. he structural change in the economy
that is a necessary part of sustained economic growth.
There is no doubt that the qeneral taxpayer is
bearing significant burdens in supporting Government
expenditure in suoporting assistance to those affected
by the recession and to other needy peoonle in the community.
If we are to have the taxoayers' support in that
expenditure, then two major things must be achieved.
One is that expenditure must be seen to be
efficient and to reach those for whom it is intended.
This is particularly true of social welfare
expenditures, where the needy must be helped.
Abuse of the system and hand-outs to those not
truly in need must be avoided wherever possible.
We have tackled inequities in the oension system,
with the revised income test arrangements for pensioners
over 70 and the proposed re-introduction of the assets test.
The explicit aim has been to enable welfare
expenditure to be directed to those individuals most in
need. We have been concerned to remove fundamental
inequities in both the tax and oension systems.
We stand ready to consult and discuss these
measures with those affected.
The details of the assets test on pensions are, for
example, still being worked out and we are consultinq widely
before taking final decisions.
The second necessary task is to ensure that the tax
system is fair and seen to be fair.
In this area we recognise the need for a thorouqh
review of Australia's taxation system.
I am convinced more needs to be done to widen the
revenue base and improve taxation efficiency and equity.
The economic planning advisory council has begun a
review of the previous studies concerning the revenue base.
This is an area where we shall be consulting
widely. While giving considerable weight to stability and
continuity in policy we shall be carefully reviewing the
alternatives. We have already moved in some areas to make the
taxation system both more efficient and more equitable.
This. is illustrated by the measures we have
introduced on taxation of superannpation lump sums, tax....
avoidance, section 26( A), sales tax and excise anomalies,
. indexation of excise--rates and removalof someanomalous tax
expenditures Our concern is to establish a tax and welfare
system appropriate to the long-term needs of Australia.
This has a counterpart in what my Government aims
to achieve in the area of industry policy.
It ' is essential for Auistra]. ian industry greatly to
improve its efficiency.
The entrenchment of low productivity and
inappropriate production patterns in many parts of the
economy is a matter of deep concern.
The need for adaptation by traditional industries
is compelling and a growing role for new technology-based
industries must be recognised.
The development of new products and processes is a
pressing priority. The steel industry assistance package stands as a
model for the manner in which it balances employment
considerations with recognition of the need for workers and
business in that industry to enhance its competitive
position through investment in new technologies.
Similarly the establishment of the Car Industry
Council to look at ways of increasing the industry's
efficiency and productivity with the aim of improving its
competitiveness on both domestic and export markets is
another significant indicator of the Government's interest
in the rationalisation of our industry structures.
These then are the major elements in the
Government's aooroach to movina the economy forward.
The Government has put in place policies which will
promote a sustained recovery that ultimately will pea back
unemployrment and maintain and enhance the living standards
of all Australians.
0 1 0.
You would all appreciate how much progress has been
made in the brief time my Government has been in office.
When I suggested eight months aco to CEDA that a
. Labor Government's economic policies would be directed
towards the imorovement of real Australian living standards
by creating the circumstances for real economic growth you
may have been a little sceptical.
I am sure you would all now agree that the
comprehensive range of policies put in place are both
appropriate to that objective and already proving effective
in its realisation. UltimatiE success crucially depends howev. er on the..
continued co-operation of all Australians.
The challenge back in February was not a challenge
for the Government alone, but for the entire Australian
community. This continues to be the challenge today.
As a nation we must dedicate ourselves to the task.
My. Government is providing the necessary leadership
ana DOIcles. What we continue to need is the continued
co-operation of all Australians in matching up to the
challenge we all face together as Australians.