It PRIME MINISTER
Li CHECK AGAINST DELIVERYEMBARGOED UNTIL 9.00 P. M.
SPEECH BY THE PRIME MINISTER
MEDIUM AND LONG TERM GROWTH STRATEGIES
SYDNEY CHAMBER OF COMMERCE 10 NOVEMBER 1983
I am glad to be able to speak to the Chamber of
Commerce of Australia's largest city at this turning point
in our country's economic fortunes.
I would like to talk to you about matters that are,
I think, as high in your own -priorities as in those of my
Government. I am going to talk about the requirements for the
return to strong lonq-tern growth in the Australian economy.
There is now widespread agreement that Australia
has turned itf; back en the disastrous economic decline that
began in 1981, and can look forward to strong growth in
production over the next year or so.
this alone will not solve Australia's economic
problems. The effects ot the , agnation, the high and rising
unemployment, that have been features of Australia's
economic life over th: npast decade, cannot be banished by
one or two years of growth.
Australia needs strong growthi over a long period.
Australia needs to replace the entrenched
underperformance of the last decade with persistent growth
in productivity, output and employment.
We must use the next year or so of declining
inflation and strong growth in output, to prepare ourselves
for longer-term growth.
This will require changes in attitude and appro-ich
in all parts of the comnunity, not least in business.
But I believe that Australians, realising the huge
social and economic costs of the poor recent economic
performance, are ready to consider thosc changes.
People are, of course, much more ready to accept
change directed at promoting economic qrowth in an
environment of optimism about the future.
That is why our first task was to correct the huge
macro-economiLc problems of inflation, declining output and
declining employm': nt which we inherited.
People are also much more ready to accept change
dire'ted ac promoting economic growth if they believe that
the benefits~ of growth are being shared eqiitably.
' That is why the emphasis of my Government on social
equity, including our commitment to an effective social
welfare system based on need, which we see as being
important in itself, is also an integral part of our effort
to restore sustained economic growth.
I will return to the policies and the attitudes
which will be necessary for sustained long-term growth.
But first let me review the evidence on the
economic recovery that is now under way and which will
provide an opportunity to address more fundamental problems
inhihiting ianp-term growth in the Australian economy.
We~ aro undoubtedly assisted by the United StE-tes having
entered a strong recovery phase, which it seems will
continue for some time yet and which has already begun
to spread to other major industralised economies.
This has already assisted our export performance in some
metals, and will eventually boost sales of a wider range
of gooO's and sarvices.
Domestic demand has begun to pick up over recent months,
with consumer spending on retail sales and motor
vehicles having risen from the depressed levels of
earlier this ydar.
Though there is some concern about the spread of rust,
the wheat harvest seems likely to be a record ani rural
production and incomes are forecast to recover strongly
from the drought depressed levels of the last year or
The pick-up in the housing sector is particularly
impressive Housing loan approvals by major lenders in the
three months to August were 28 per cent higher than
a year ago; and
Building approvals rose 12.4 per cent in the three
months to September to be 22 per cent above a year
ago.
Interest rates have been falling, even over the months
in which we have been borrowing most of the funds
required to finance the 1983-84 Commonwealth deficit.
Inflation has moderated to single digit rates, with
excellent prospects for further large declipes over the
next year.
Consumer and business confidence are each strengthening.
The various indexes of production activity show a steady
improvement over recent quarters; and
Employment has ceased its downward slide and there is
every indication that the Budget time forecasts of a
stready improvement over tho course of this financial
yer will be realised or exceeded. The latest figures
shcw that 82,000 Kew jobs were created, on a seasonally
adjusted basis, between April, when we changed the
course of Australian economic policy at the Summit, and
October This year.
The latest survey of the tertiary sector undertaken
by your ow. federal body showed, in the words of the
Chamber, " A significant up-turn in tertiary sector trading
results during the September quarter and the prospect of a
fortner imprcve~ nent in the December qu-rtar".
The sirvey also indicated impreed prospects for
profitabilitv and a '.. ow own in stock decumulation.
Other private sector surveys covering other areas
in the economy are showiny a similar picture.
All in al-the signs are that this will be an
excellent year compared with those of the recent past.
Indeed, growth through the current financial year,
estimated at about 5 per cent for non-farm product and over
6 per cent in total product at the time of the Budget, and
now looking better with revision of estimates of farm
output, is strong by longer historical standards.
There is an even more remarkable turnaround in the
trend, from decline throuqh 1982-83 to strong expansion this
year. However, given the severity of Australia's economic
problem, the prospect of one good year provides no reason
for complacency. We should also remenber that the recovery, as
alw-ys in the early stages, is as yet unbalanced.
Private investment is expected to be weak over the
course of this year, with much of the growth being
attributable to one-off influ. nces such as the rural
recovery and the turnaround in the inven-ory cycle.
The most important task for the Government,
therefore, is to broaden this recovery anJ sustain it into
th.* future. This will require action in several areas.
First, we need to ensure that all major sectors
contribute appropriately to growth, so that no single sector
is stre-tched beyond sustainable ex: pansion, and that
bottle-necks in specific areas do not retard th-overall
improvement. The short lived recoveries in the past decade have
all been narrowly based and too reliant an development in
one or two sectors.
This was particularly true of the 1980/ 81 up-turi
which was largely generated by resources-related investment.
Secondly, we must set our macro-economic policies
to avoid the instability in interest rates, costs and prices
that have aborted incipient recovery at several points in
the past deca. e.
We are aware of the danger that the coincidence of
an excessive Budget deficit with strong gro,-th in private
investment in the course of recovery could strain financial
markets, raise interest r-. tes, and threaten recovery.
This was one subject of representations by the
Australian Chamber of Commerce, to myself and senior
economic ministers in Canberra a month or so ago.
W. believe that the early financing of the current
financial year's deficit, with the Commonwealth making
relatively light demands in financial markets after
Christmas, allows substantial recovery of private borrowing
in the first half of the New Year, to meet seasonal as well
as longer-term investment needs.
In the next financial year and beyond, we intend
limiting the Commonwealth's borrowing to levels that are
consistent with strong growth in private investment in the
course of recovery.
In preparing next year's Budget, we will have
regard to the prospective increase in the private sector's
need for funds and we will ensure that the borrowing
requirement of the public sector is adjusted in a manner
consistent with this.
It is also essential that we capitalise on the much
smaller increases in consumer prices that are expected next
year to entrench lower inflation levels and expectations.
We believe that the Prices and Incomes Accord, and
monetary policies designed to accommodate growti but not
avoidable inflation, can achieve this result.
But they will, of course, require the support of
the whole community, most importantly in ensuring full
compliance with the recently announced wage-setting
principles of the Arbitration Commission.
At the time of the Economic Summit some work was
published which showed that, to reduce unemployment even to
the levels which we might have considered tolerable just a
few years ago we r'm1st consistently achieve economic growth
of the order cE 4 to 5 pe, cent per annum over many years.
Our economy has not . ianaged to achieve growth of
that order consistently cver a number of years for a de:-ade.
This is a state of affairs about which none of us
can be complacent. What has caused this poor economic performance an-!
what, therefore, can . we do to rectify the situation?
Obviously I do not intend to nrescnt a blue-print
tonight. However, I would like to raise somc of these
matters with you and to give n indication of the
Government's approach to tnem.
Strong, sustained economic growth, at rate
sufficient to make a substantial contribution to destroying
the scourge of unemployment, requires movements in new
directions across the whole range of economic policy and
performance. In the araa of macro-economic policies, the new
approaches which we have implecmented this year are necessary
also for long-term growth.
We need steady expansion of demand at rates that
will support strong growth but not inflation.
We also need moderation in all income claims,
within the overall constraints imposed by the growth in
national productivity, and the requirement to allocate
equitably the benefits of growth.
The Prices and Incomes Accord provides a framework
that allow adjustment to new circumstances as they enerqe.
Strong growth over long per iods rc qui res high
I? vels of investment from home anc1abroad.
Australia's high rate of savings out of incomes
provides a good basis for high levelj of domestic
investmnent. Mos'. important oi' all is our investment ; n human
skills our most valuable resource for economic growth.
My Government is committed to raising the
proportion of our young people who expe~ rien~ ce higher levels
of formal education, to ensuring that the content of that
education is appropriate to the complex modern world, and to
improving support for a wide range of training and
re-training on the job.
Substantial first steps were taken along these
lines in this year's Budget.
Confidence in the durability of growth, long-term
stability in policies, and policies that encourage the
efficient allocation of resources to their most productive
uses are also important to the maintenance of hiqh levels of
investment. Even greater departures from past approaches are
required in the area of micro-economic policies.
As a society and national economy, AuIstralia must
be more careful than in the past to allocate resources t)
their most productive uses.
This requirement is equally important in the public
and private sectors.
In the public sector, my Government has given
special attention to the careful allocation of resources to
high priority activities.
The restoration of Australia as a fair society
cannot be achieved without public expenditure at something
like the levels of the recent past.
But we can get much more economic growth, and much
more social equity, from the levels of expenditure that we
have inherited. We have established new mechanisms, including the
Expenditure Revie-w Co) mmittee of Cabinet, for controlling
expenditure in line with the requirements of growth and
e q uity. But it is not an easy matter to re-allocate
resources in line with national priorities.
The political pressures to maintain ineffective
patterns of expenditure are formidable.
As examples of these pressures, I need do no more
than refer to the dishonest political campaigns against our
reform of sunerannuation taxation, our propose& assets test
on old-age pensions, and our decision not to commit over
half a billion dollars of taxpayers' money to construction
of an Alice Springs to Darwin railway before having the
benefits of a careful independent economic evaluation.
We are determined to resist pressures for
irreicponsible public expenditure.
But we will be assisted greatly if we have the
support of bodies like this Chamber in our commitment to
efficient and equitable patterns in public xpenditure.
Efficient allocation of resources to their most
productive uses in the private sector depends on government
regulatory policies as well as upon attitudes within the
private sector itself.
We recognise that there are many features of the
regulatory environment that has developed in Australia that
inhibit growth. our general approach is to let markets do their job
where thev are working efficiently, but to intervene where
this is necessary' to correct market failure, or to Eachieve
s,: me clear equity objective.
. We will soon be receiving the Report of the Martin
Committee, which is examining the system of regulation of
financial markets in the light of my Government's social and
economic objectives. We expect that there is scope for reform of the
fnancial system, to promote growth at the sime time as
enh. ncing progress towards ouir objective? Of building a more
equitable Australia.
It is widely accepted that the taxation system we
inherited often discourages the allocation of resources to
their most productive uses, at the same time as it
distributes the burden of t3xation inequitably.
The taxation changes in the May Economic Statement
and the Budget represent progress towards a more efficient
and equitable taxation system.
We have been seeking further reforms which would
promote efficient resource allocation and growth, for
example through the rationalisation of distorting levies and
charges in the resources sector.
At this stage we are also seeking, through EPAC, to
put together the data base relevant to further consideration
of these issues.
WitL the benefit of this information, the
Government will consider feasible options on further
taxation reform.
We all have doubts about whether past industry
policies are appropriate in current circumstances.
As a nation, our prospects for growth will be
enhanced the more we commit our resources to industries
which are more productive, relative to other industries, in
Australi than in other cuntries.
Our growth opportunities are enhanced by our
location in the Western Pacific, the most dynamic region of
the contemuacy world economy.
But we will be able to use these opportunities only
if our econcmy is open to high levels of international
trade. This gives . pecial relevance to the ongoing debate
in Australia about the appropriateness of the existing
levels and poittern of protection.
We are committed to maintaining current levels of
protection while the economy remains in recession.
But we look forward to opportunities for gradually
reducing protection in a future environment of confidence in
sustained growth.
In this context, it is sometimes overlooked that
for our most highly protected industries, which are
protected by quotas on imports, effective protection can be
reduced by rationalisation of domestic production to raise
productivity and reduce costs, even if there is no increase
in the volume of imports.
For example, we believe that there is considerable
scope for cost reduction along these lines in the motor
vehicle industry, to make domestic production much more
competitive relative to imports.
My Government has no ideological objection to
becoming directly involved in efforts to encourage more
efficient patterns of production in industries which have
been receiving high levels of government assistance, in
order to realise pote-ntial for clear gains in efficiency.
More generally, our industry policies will be
designed to promote the expansion of our most productive
industries, and strong growth in productivity in all our
industries. Importantly this means making effective use of new
technologies, whether developed in Australia or absorbed
from abroad. Sustained economic growth will require the
progressive adoption of such technologies both by new and
existing industries.
The effectiveness with which we apply new
technology will determine the efficiency of Australian
industry, its competitive performance and its capacity to
grow. For Australia small business has an especially
important. role to play.
The Chamber's recent creation of the Small Business
Association of New South Wales is a timely recognition of
this. We rely upon small businesses for a great deal of
the innovative and enterpenerial talent so necessary to our
economic growth. As such, they are major source of new jobs
particularly in the tertiary sector.
Australia needs a strong, viable and diverse small
business sector.
This was recognised at the national Economic
Summit in Canberra and small business is now represented on
EPAC. The realization of Australia's potential for
sustained strong growth will require many groups in our
society to accept faster rates of chanqe than they have in
the recent past : structural change in the economy; changes
in technology; changes in the location and content of work.
This will be possible only if there is broad
consensus in Australia about the desirability of change.
This broad consensus can be achieved only in the
context of policies designed to achieve an equitable
distribution of the benefits of growth.
This broad consensus can be achieved only if there
is close consultation at all levels of our society about the
effects of change.
The Government has promoted consultation through
the National Economic Summit Conference and the Economic
Planning Advisory Council, and through a wide range of less
formal consultations with business, workers and community
groups, including on occasions like this.
We are keen to promote consultation, for example on
the introduction of new technology, at all levels in the
work place. The Labor Government sees these concerns for social
equity and consultation as necessary parts o-f a better
Australian society.
They are also integral parts of our ambition to
sustain economic growth in Australia.
My Government aims to restore Australia to the
front rank of the world's economies.
We have been putting appropriate policies into
place and now look to all Australians to rise to the
challenge.